The following information is available on two passive portfolio managers: A and B. Average returns differential is the average of the differences between portfolio returns and Index returns.

Manager A (%) Manager B(%) Index (%)

Average quarterly returns 5.89 6.38 6.00

Average returns 0.11 0.38 N/A

differential

Std Deviation of returns 11.41 11.77 11.66

a) Calculate the tracking error. Determine which manager does a better job, and what the tracking error measures.

b) Differentiate between a Contrarian strategy and Momentum strategy

c) What is tax efficiency and why is it relevant to an active portfolio manager?