James Frazee is chief investment officer at H&F Capital Investors. Frazee hires a third- party adviser to develop a custom benchmark for three actively managed balanced funds he oversees: Fund X, Fund Y, and Fund Z. (Balanced funds are funds invested in equities and bonds.) The benchmark needs to be composed of 60% global equities and 40% global bonds. The third-party adviser submits the proposed benchmark to Frazee, who rejects the benchmark based on the following concerns: Concern 1: Many securities he wants to purchase are not included in the benchmark portfolio. Concern 2: One position in the benchmark portfolio will be somewhat costly to replicate. Concern 3: The benchmark portfolio is a float-adjusted, capitalization-weighted portfolio.
Which of Frazee’s concerns best justifies his decision to reject the proposed benchmark? A Concern 1 B Concern 2 C Concern 3
I said C, but its A. Why?