You are a fund manager of a passive mutual fund. Your performance benchmark is the index of the largest 30 German stocks, DAX 30. HeidelbergCement has performed better than the DAX index recently, while Covestro has performed worse than the index. As a result, HeidelbergCement has been recently included in the DAX 30 index (its weight in the index is 1%), while Covestro has been excluded from the index (its weight in the index before exclusion was 0.5%)

Which of the following actions should you undertake as a fund manager of the fund?

a.

You should sell all holdings in Covestro and buy HeidelbergCement such that it has 1% in your portfolio

b.

You should not make any changes to your porftolio since it is passive

c.

You should sell all holdings in Covestro and buy HeidelbergCement such that it has 0.5% in your portfolio

d.

Since you need to outperform your benchmark and HeldelbergCement has performed better than the index, you should buy HeidelbergCement such that it has more than 1% in your funds portfolio