A pension fund manager is considering investing in two funds to be included in the pension plans current portfolio, which is a well-diversified portfolio as proxied by the Russell 3000 index. The first fund under consideration is a growth stock fund, the second a value stock fund. The expected return, standard deviation, standard deviation of residuals, and beta of the funds are as follows:

	Expected return	Standard Deviation	Beta	Standard deviation of residuals
Growth fund (G)	10%	20%	1.1	12%
Value fund (V)	12%	12%	1.6	20%

The correlation between the two fund returns is .80. The market risk premium is expected to be 6% and the risk-free rate is 1%.

Determine and explain which fund should be included in the pension funds current portfolio. Justify your answers with a risk-adjusted performance measure and show all your work.