A2

a) As per the CFA guide on Portfolio Concepts, an investors objective in using a meanvariance approach to portfolio selection is to choose an efficient portfolio. Discuss what is meant by an efficient portfolio. Then explain how minimum-variance portfolios are used to construct an efficient frontier. Plot a hypothetical efficient frontier and denote the minimum variance portfolio.

(b) If an investor can make money through passively investing using Exchange Traded Funds (ETFs) in a rising index, there is no need to waste money on an active manager. Critically evaluate the above statement, using examples where appropriate.