Question

Asked Mar 25, 2019

Shown below are the investment weights for the securities held in four different portfolios: three mutual funds and the benchmark index that each of those funds uses. |

% Security Investment Weight: | ||||

Security | Benchmark Index | Fund X | Fund Y | Fund Z |

1 | 10% | 12% | 40% | 11% |

2 | 10% | 13% | 0% | 9% |

3 | 10% | 8% | 5% | 9% |

4 | 10% | 15% | 0% | 9% |

5 | 10% | 7% | 0% | 11% |

6 | 10% | 10% | 0% | 11% |

7 | 10% | 5% | 30% | 9% |

8 | 10% | 14% | 0% | 11% |

9 | 10% | 6% | 0% | 11% |

10 | 10% | 10% | 25% | 9% |

a. Calculate the active share (AS) measure for Fund X, Fund Y, and Fund Z relative to the benchmark index. |

b. Using these active share calculations, indicate which fund is the most likely to be considered: (i) a passive index fund, (ii) a closet (or enhanced) index fund, and (iii) an actively managed concentrated stock-picking fund. Explain the reason for your classification. |

Step 1

**a.**

**Formula for calculation of active share (AS):**

Step 2

**Excel calcualtion of active share measure for fund X, fund Y, and fund Z:**

Step 3

**Excel workings:**

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