You are supporting an investment team at a wealth management platform and have been asked to review whether a tactical tilt inside a diversified client portfolio should be increased next quarter. The team currently uses a broad market sleeve and a quality-factor sleeve available through Merrill model portfolios, and recent performance has raised the question of whether the quality sleeve is adding enough risk-adjusted value. You have 12 months of return data and a simple regression output already prepared from the team’s analytics workflow. Assume returns are monthly and ignore taxes and transaction costs for this analysis.
| Metric | Broad Market Sleeve | Quality Sleeve |
|---|---|---|
| Average monthly return | 0.80% | 1.10% |
| Monthly volatility | 4.20% | 3.60% |
| Correlation to broad market | 1.00 | 0.82 |
| Regression alpha (monthly) | 0.20% | 0.35% |
| Regression beta vs broad market | 1.00 | 0.85 |
| Current portfolio weight | 70% | 30% |
| Proposed portfolio weight | 55% | 45% |
| Next-quarter expected broad market monthly return | 0.70% | — |
How would you use this return data to assess whether increasing the quality sleeve is justified, and what expected return and risk trade-off would you present to the investment team?