CFA 2018 AM Mock Question 21

I see some inconsistencies in the answer, for example regarding duration:

If portfolio 3 has exactly the same key durations as the benchmark, how could it be defined (regarding only duration) that it is enhanced indexing or active management? This should be pure indexing.

In general a very subjective question… between correct answer A and C…

Pure indexing: matches risk factors (and duration, although I think matching risk factors is the priority here)

Enhanced indexing: matches most risk factors and matches duration

Active management: more flexibility: matching duration is an option, but not a must.

So I would go for enhanced indexing.

yes but the problem is another one, in the solutions they classify each feature in a category (pure indexing, enhanced and active).

when it comes to duration, for portfolio 3 (which has exactly the same duration as the benchmark) is classified as Enhanced or Active. If it has the same duration (considering only the duration as they did) it would be pure indexing.

Agree with taytus. Though i am looking at Question #20 of the 2018 AM CFA Mock.

In fact, the curriculum, specifically points out Duration as being key risk metric to differentiate between Pure indexing and other strategies.

Even the BB eg. and EoC Reading 21 (look up solutions), use Duration as one of the key measure to identify amongst the three strategies.

Duration for Portfolio 3 is bang on with Benchmark -> hard to fathom how this could not be considered as Pure indexing.

Rest of the critieria is too close to arrive at a firm conclustion. Even tried the 50 bps (0.5%) threshold (As mentioned in Exihit 5 of Reading20) to make the distinction…but didn’t quite work.

On other note, the “Turnover” of Benchmark is also not provided…

Think, its a poorly written or as usual despite their claims of no “tricks” on exam questions, there is something i m missing!!

Any other views ??

Bump…

Any thoughts on this question guys??

Thanks

Sorry folks- bumping one more time…now that a lot of us i would imagine has attempted CFA mocks.

Cheers

I was xxxx by this question too. pure indexing and enhanced indexing must match primary risk factors and duration should be exactly matched. I recall I did a question before in another mock that one strategy looks like Enhanced indexing but actually active just because duration is not exactly matched. Anyway I don’t think it’s worthwhile to dig into detail. I don’t think actual exam would be that ambiguous in the way it’s constructed

I think you both meant the question 20 (not 21).

I also hesitated between A and C. This question is ambiguous.