In the Thoms Investment Advisory Case Scenario, CFA Level II Mock Exam B: Afternoon Session, question #60,
Why did we rely on the highest tracking error not the highest Information risk which indicates the highest active management?
The question is stated below;
EXHIBIT 2
PANEL A: FACTOR MODEL AND PORTFOLIO CHARACTERISTICS
Sector Region** Mean Local Index Return βROE βMKT βINV Information Ratio **Tracking Error Eurozone 8.5% 0.3
0.20
1.5 0.971 3.500% North America 6.0% 0.9 0.90 0.4 1.192 4.000% Pacific Rim 9.0% 0.6 0.93 0.9 0.509 9.375% Japan 5.0% 0.9 0.88 0.6 1.620 3.000%
Q. According to the data in Exhibit 2, which portfolio most likely exhibits the risk characteristics of an aggressive active equity manager?
- Pacific Rim portfolio
- Eurozone portfolio
- Japan portfolio