Q. Which of Parker’s statements about Manager B in Exhibit 1 is most appropriate? The statement about:
- tracking errors.
- excess return.
- currency overlays.
Solution
B is correct. The comment about excess return being luck rather than skill is correct. Replication managers attempt to create a portfolio that tracks the performance and the volatility of the underlying index as closely as possible. The proper measure of skill is the tracking error: Manager B has the highest tracking error among the three managers.
A is incorrect because tracking error does not measure volatility of the portfolio; rather, it measures the volatility of the excess return between the index and the portfolio.
C is incorrect because a currency overlay assists a portfolio manager in hedging (not levering) the returns of securities that are held in foreign currency back to the home country’s currency.
Passive Equity Investing Learning Outcome
- Discuss potential causes of tracking error and methods to control tracking error for passively managed equity portfolios
此题答案说currency overlays是hedging not levering the return，我记得overlay是分割了hedging和寻求return的目标，currency overlay主要是追求收益的吧，然后future本身有levering的作用。
另外有几个equity问题在答题区有追问，请关注一下
