another question on GIPS

what does it mean by:

“if the portfolio has minimal tracking limits from an index portfolio, then the description of “discretionary” is really no longer appropriate.”

what is minimal tracking limits?

portfolio cannot change too much from the index it tracks (both in terms of a. Securities that are present in the index b. Weight of securities in the index).

If that be the case - a manager cannot be discretionary - and add / remove index constituents. His ability to perform active management is thus constrained / curtailed.

There is no benchmark for what qualifies as “minimal”, so they won’t give you some arbitrary limit and expect you to determine whether it qualifies or not. They’ll tell you whether there are minimal limits or not; you’re expected to be able to interpret the level of discretion based on that.