Was reviewing my past incorrect answers and came across this problem. Probably not looking at something correct here, but it says the information ratio for the tracking portfolio is expected to be zero. The answer says its zero because the tracking portfolio is expected to have a return equal to that of the benchmark. This makes sense… but the idea of a tracking portfolio is to utilize superior asset weighting so the return would be higher than that of the benchmark. Is it because they said “expected return?” Thanks.
I think (but not sure) that a tracking portfolio’s return is not supposed to be higher than the benchmark, only equal to the benchmark. that’s why the IR should be zero
^Agreed. I guess they were getting at the tracking portfolio before active asset weighting was involved…