You are comparing two fund managers. Both managers claim to hold mean-variance efficient portfolios. As a prospective client, you ask both managers what their allocation among risky assets is and obtain the following data.
International stocks US stocks
Manager 1 25% 75%
Manager 2 35% 65%
Assume that both managers use the same estimates of expected returns, volatilities, and correlations and can freely borrow/lend at the same risk-free rate of interest. There are no transaction costs and taxes. Both managers have the same investment horizon.
(a) Are both managers holding efficient portfolios?
(b) Does your answer change if the managers do not have access to a risk-free asset?