Schewser Volume 2, Question 9C AM Session 1:
Two portfolios are used:
#1: -0.1% Active return and 0.01% Active risk (80% allocation)
#2: 2.71% Active return and 4.55% Active risk (20% allocation)
Question asks whether this is a core-satellite or a completeness fund, and answer says is core-satellite because #1 is an index fund and #2 is the active manager.
It also says that “if it were a completeness fund, the allocations should have offsetting active return and risk to achieve more index-like characteristics”.
My problem is that the previous sub-question asked for the combined active return and active risk based on the allocation weights, and result is 0.9% active risk, and 0.46% active return. Isn’t this index-like enough for the allocation to be considered completeness fund?? Could anyone explain where is the limit or how can we correctly distinguish both?
Cheers!