Case | HBS Case Collection | February 1997 (Revised March 1998)

Smith Breeden Associates: The Equity Plus Fund (A)

by Robert C. Merton and Alberto Moel


In early 1997, Smith Breeden Associates, a money management and consulting firm, was pondering the future of the Equity Plus Fund. The Equity Plus Fund was an S&P enhanced-index fund that tried to outperform the S&P Index by replicating the index using low-cost derivative strategies and investing the remaining cash in a hedged portfolio of mortgage-backed securities. The fund had performed well since inception, with an annualized total return above that of the S&P Index. However, this performance had not resulted in significant growth of the fund's assets. With its performance record, Smith Breeden had a number of options. It could market the fund more aggressively, it could offer other sector-specific funds, or it could set up an enhanced index fund based on an international stock-market index.

Keywords: Assets; Cash; Financial Markets; Financial Strategy; Mortgages; Investment Funds; Investment Portfolio; Marketing; Performance; Consulting Industry;


Merton, Robert C., and Alberto Moel. "Smith Breeden Associates: The Equity Plus Fund (A)." Harvard Business School Case 297-089, February 1997. (Revised March 1998.)