2010 Schweser Exam 3 Book 1 #12.4 Answer: “…It is also true that the EMBI+ index is dominated by the debt securities of Latin American countries. Ordinarily, an investor would not want to invest in a concentrated index, due to its lack of diversification. However, *with such a concentrated index, the investor is faced with both unsystematic and systematic risk and hence, and increased return potential*…” 2010 Schweser Exam 2 Book 2 #18.4 Answer: “…The major emerging market bond index, the Emerging Markets Bond Index Plus (EMBI+), is concentrated in Latin American debt (e.g., Brazil, Mexico). *The portfolio manager can earn an alpha by investing in emerging country bonds outside of this region*”
Where should the conflict be? Answer 12.4 mentiones that a concentrated index is exposed to both un- and systematic risk. Anwer 18.4. mentions that if you invest OUTSIDE the concentrated index you can earn alpha as compared to the index as benchmark. Looks consistent to me.
18.4 is the definition of sources of excess return international fixed income. Markets outside the index. Currency, Sector/Structure/Issuer Duration