2012 CFAI mock question 21

This should be really easy, but for some reason I don’t understand the answer or the explanation provided by the CFAI. It says the portfolio needs to “shed exposure” to the return of the canadian index, but I don’t see where they have exposure.

What am I missing?

2 positions in portable alpha

long 1 index for beta

long 1 portfolio and short the index that includes the portfolio assets.

your question is about the second position.

Because the client found a manager that longs canadian equities. He must short the candian index to eliminate Beta, leaving alpha to be exploit.

In this mind set, the client must shed exposure of his “long only” manager by shorting a canadian index.

oh ok, I read the question wrong. I didn’t realize they meant he was actually using that manager for long canadian equity exposure.

Thanks for clearing that up