1. A pension fund manager is considering investing in one of the two funds (S or T) based on two sectoral indices. The expected return, standard deviation, standard deviation of residuals, and beta of the two funds and those for the S&P 500 index are as follows:

	Fund S	Fund T	S&P 500 Index
Sharpe ratio	.43	.49	.19
Treynor	3.31	2.38	1.64
Information ratio	0.81	0.54	0.00
SCL Regression Statistics
Alpha	1.63	5.26	0.00
Beta	0.70	1.40	1.00
e	2.02	9.81	0.00
R-squared	0.91	0.64	1.00

Which fund (S or T) should be included in the pension funds current portfolio, which is a well-diversified portfolio that mimics the S&P 500 index? Justify and explain your answer with the appropriate risk-adjusted performance measure from the above table.

2. The information ratio (IR) of the S&P500 index is equal to 0.00 in the above table in (a). Explain what the IR is and why it is equal to 0.