QUESTION 112

Robin worked with an investment advisor to establish an asset allocation. They have decided to implement the investment strategy with mutual funds. The allocation calls for 40% fixed income, 10% cash, 30% large-cap, and 20% small or mid-cap equity. Which of the following are the best choices for the large cap allocation?

Tomahawk fund: alpha = 1.5, beta = 0.67, R2 = 0.62 (vs S&P 500)

Blackhawk fund: alpha = 0.5, beta = 1.05, R2 = 0.87 (vs S&P 500)

a. Tomahawk fund because the alpha is the highest.

b. Tomahawk fund because the R2 is relatively low and thus provides diversification.

c. Blackhawk fund because its alpha appears reliable.

d. Blackhawk fund because its beta is closest to 1.0.