Q. Jo is a member in public practice who is very wealthy and has no individual investments that are material to her. Which of the following investments would impair Jo's independence?

1. Jo owns 3% of a diversified mutual fund and is on her firm's attest team for that fund.

2. Jo owns 4% of a diversified mutual fund and is on her firm's attest team for ABC Co., whose shares are in the mutual fund's portfolio of stocks.

3. Jo owns 2% of an undiversified mutual fund that has ABC Co. stock in its portfolio (and Jo is on her firm's attest team for ABC).

4. All of the answer choices provided

I know the answer is 1. but why?

I thought if the member owns 5% or less of the outstanding shares of a diversified mutual fund, the interest is in the underlying investments of the fund is indirect. Immaterial and indirect interests do not impair independce.

I feel like the answer choice #1 cannot be the answer, because it's indirect and immaterial