Question #31

of 40 Which of the following is correct for a constrained active portfolio? A) TC<1 B) TC>1 C) TC=1 Sundar Mithai, CFA, is a fund manager for Pearl Investments and makes a monthly report to the firm's partners. Mithai mentions two active managers in his report, Galab and Phasar. Exhibit 1 provides additional information on the two managers: Exhibit 1: Selected Information on Galab and Phasar Galab Phasar Information coefficient 0.22 0.37 Transfer coefficient 0.8 0.73 Active risk 5.6% 6.6% Active return 10.8% 9.2% Mithai makes the following comments regarding the two active managers: Comment 1: The investment mandate of Phasar appears to be less constrained relative to Galab. Comment 2: Galab appears to have better skill at predicting returns. Mithai recently decided to give all the analysts at the firm a refresher on the fundamental law of active portfolio management. Details of a hypothetical unconstrained fund is shown in Exhibit 2. Exhibit 2: Hypothetical Fund Information coefficient 0.14 Monthly active bets 5 Active risk 4.32%