You are a financial adviser, and the fund manager of Cuba Capital is visiting your office today. They would like to discuss adding the Cuba Capital fund to your clients' portfolios. They leave you with a brochure reporting the backtested track record of the Cuba Capital investment strategy. It includes the abnormal returns of the strategy relative to several theoretical asset pricing models. You notice in fine print at the bottom of the page that the backtesting returns are based on an equal-weighted portfolio weighting scheme. Which of the following is most likely to concern you about the backtesting using an equal-weighted portfolio weighting approach?

Select one:

a. The Cuba Capital fund engages in fundamental analysis.

b. The abnormal returns of Cuba Capital fund with respect to the Fama-French three-factor model may be driven by the small stocks in the portfolio.

c. The Cuba Capital fund must use a passive approach given that the portfolio weightings do not reflect the relative market capitalizations of the stocks in the portfolio.

d. The Cuba Capital fund must use an active approach given that the portfolio weightings reflect the relative market capitalizations of the stocks in the portfolio.

e. The abnormal returns of Cuba Capital fund with respect to the CAPM may be driven by the small stocks in the portfolio.