Primo Management Co. is looking at how best to evaluate the performance of its managers. Primo has been hearing more and more about benchmark portfolios and is interested in trying this approach. As such, the company hired Sally Jones, CFA, as a consultant to educate the managers on the best methods for constructing a benchmark portfolio, how to choose the best benchmark, whether the style of the fund under management matters, and what they should do with their global funds in terms of benchmarking.

For the sake of discussion, Jones put together some comparative 2-year performance numbers that relate to Primos current domestic funds under management and a potential benchmark.

	Weight		Return
Style Category	Primo	Benchmark	Primo		Benchmark
Large-cap growth	0.60	0.50	17	%	16	%
Mid-cap growth	0.15	0.40	24		26
Small-cap growth	0.25	0.10	20		18

As part of her analysis, Jones also takes a look at one of Primos global funds. In this particular portfolio, Primo is invested 75% in Dutch stocks and 25% in British stocks. The benchmark is invested 50% in Dutch and and 50% in British stocks. On average, the British stocks outperformed the Dutch stocks. The euro appreciated 6% versus the U.S. dollar over the holding period while the pound depreciated 2% versus the dollar. In terms of the local return, Primo outperformed the benchmark with the Dutch investments, but underperformed the index with respect to the British stocks.

Which of the following statements about Primos global fund is most correct? Primo appears to have a positive currency allocation effect as well as

• a negative market allocation effect and a positive security allocation effect.

• a negative market allocation effect and a negative security allocation effect.

• a positive market allocation effect and a negative security allocation effect.