1. James Bond conducts a top-down analysis of a fund and finds that the fund has a positive alphaof 1% per annum, a tracking error of 9% per annum (TE of less than 2% per annum should be considered as a passive fundwhile aggressive mutual funds would have TE of 10% or more). James then conducts a bottom-upanalysis andfinds that while the Selection Effect was +0.5%, the Allocation Effect was -0.5%. AssumingJames did not make a mistake and that the top-down and bottom-up analysis were conductedusingdaily data with 35 observationsfor the same fund and benchmark, what was the reason for this result?