Problem 11-08

Shown below are the investment weights for the securities held in four different portfolios: three mutual funds and the benchmark index that each of those funds uses.

		% Security Investment Weight:
Security		Benchmark Index		Fund X		Fund Y		Fund Z
1		9	%	5	%	45	%	10	%
2		9		13		0		8
3		9		13		5		8
4		9		12		0		8
5		9		6		15		8
6		9		13		0		10
7		9		11		28		10
8		9		8		30		10
9		9		15		0		8
10		9		5		25		10

1. Calculate the active share (AS) measure for Fund X, Fund Y, and Fund Z relative to the benchmark index. Do not round intermediate calculations. Round your answers to one decimal place.

   Fund X: %

   Fund Y: %

   Fund Z: %

2. Using active share calculations above, indicate which fund is the most likely to be considered: (i) a passive index fund, (ii) a closet (or enhanced) index fund, and (iii) an actively managed concentrated stock-picking fund. Explain the reason for your classification.

   Fund X is considered (an activity managed concentrated stock picking fund OR closet (enhanced) index fun OR passive index fund) because, it -(differs OR not differ) in the investment weights of holdings relative to the benchmark index.

   Fund Y is considered (an activity managed concentrated stock picking fund OR closet (enhanced) index fun OR passive index fund) because, it is (less OR more) concentrated than the benchmark and has -Select-fewerMoreItem holdings and -Select-biggerSmallerItem investment positions.

   Fund Z is considered -Select-an actively managed concentrated stock-picking funda closet (or enhanced) index funda passive index fundItem 10 because its security holdings come closer to matching the benchmark, -Select-in number of those holdingsin the investment weights of those holdingsboth in number of holdings and the investment weights of those holdingsItem 11 .

Problem 11-07

Consider the annual returns produced by two different active equity portfolio managers (A and B) as well as those to the stock index with which they are both compared:

Period	Manager A		Manager B		Index
1	12.3	%	13.0	%	11.3	%
2	-3.0		-3.2		-2.1
3	15.0		14.0		18.9
4	0.3		1.8		-0.5
5	-7.7		-5.7		-3.8
6	23.6		24.7		21.7
7	-11.8		-11.4		-14.0
8	5.0		5.2		5.2
9	3.4		4.3		2.1
10	19.6		18.3		19.5

Manager A: %

Manager B: %

-Select-Manager AManager BItem 3 's average return is less than the index and -Select-Manager AManager BItem 4 's average exceeded that of the index.

1. Did either manager outperform the index, based on the average annual return differential that he or she produced relative to the benchmark? Use a minus sign to enter negative values, if any. Do not round intermediate calculations. Round your answers to two decimal places.

2. Calculate the tracking error for each manager relative to the index. Which manager did a better job of limiting his or her client's unsystematic risk exposure? Do not round intermediate calculations. Round your answers to two decimal places.

   Manager A: %

   Manager B: %

   -Select-Manager AManager BItem 7 did the better job of limiting the client's exposure to unsystematic risk as the difference between manager's returns and those of the index has a -Select-largersmallerItem 8 standard deviation.