Can you please help me with the answer provided to Question 7 in the EOC problems for Reading 23 (CFAI textbook):
Q. Simon Hayes …. expertise lies in building market-neutral long-short strategies using UK equities. …. Hayes learns that the client is planning to hire an investment firm to manage a Japanese equity portfolio. How can Hayes satisfy this mandate using UK equities and no Japanese Equities?
Solution: Hayes can produce such a portfolio through the use of a portable alpha. He submits a proposal to manage a market-neutral long-short portfolio of UK stocks. This strategy generates alpha. To produce beta, the Japanese equity exposure, Hayes takes a long position in a notional value of futures equal to the size of the portfolio.
I don't understand the solution -- what futures is Hayes going to take a long position in -- is it Japan Topix futures?
Q. Simon Hayes …. expertise lies in building market-neutral long-short strategies using UK equities. …. Hayes learns that the client is planning to hire an investment firm to manage a Japanese equity portfolio. How can Hayes satisfy this mandate using UK equities and no Japanese Equities?
Solution: Hayes can produce such a portfolio through the use of a portable alpha. He submits a proposal to manage a market-neutral long-short portfolio of UK stocks. This strategy generates alpha. To produce beta, the Japanese equity exposure, Hayes takes a long position in a notional value of futures equal to the size of the portfolio.
I don't understand the solution -- what futures is Hayes going to take a long position in -- is it Japan Topix futures?