Can anyone please suggest the meaning of all 3 statements mentioned in the below question (it would be great if you use examples or hypothetical numbers)? Also, please tell what is the question trying to ask?
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Andrew Isaac runs a $100 million diversified equity portfolio (about 200 positions) using the the Russell 1000 as his investable universe. The total capitalization of the index is approximately $20 trillion. Isaac’s strategy is very much size agnostic. He consistently owns securities along the entire size spectrum of permissible securities. The strategy was designed with the following constraints:
- No investment in any security whose index weight is less than 0.015% (approximately 15% of the securities in the index)
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Maximum position size equal to the lesser of 10× the index weight or the index weight plus 150 bps
- No position size that represents more than 5% of the security’s average daily trading volume (ADV) over the trailing three months
The smaller securities in Isaac’s permissible universe trade about 1% of shares outstanding daily. At what level of AUM is Isaac’s strategy likely to be affected by the liquidity and concentration constraints?
This question is basically asking how much constraint is each condition giving to hold any security.
So, for example if weight of security is 0.1% in an index and we take 2nd condition it basically means that the position can not be more than 0.1*10 = 1% or 0.1+1.5 = 1.6% of the total portfolio …lesser condition bola hai so 1% of $100mn portfolio.