A Portfolio Manager evaluates a global equity fund focused on large-cap tech stocks in North...

A performance benchmark must represent the portfolio’s relevant investment universe, asset class and risk characteristics. A broad global bond index is unsuitable for evaluating a global large-cap technology equity fund because fixed-income securities and technology equities have fundamentally different sources of return, volatility, duration, credit exposure and market sensitivity. The reported four-percent outperformance is therefore not meaningful evidence of superior management; it compares unlike investment exposures.

Option B is incorrect because the fund invests across North America, Europe and Asia. Restricting the benchmark to North American equities would omit material portions of the fund’s mandate. A more appropriate benchmark would reflect global large-cap technology equities or a carefully constructed blended equity benchmark corresponding to the fund’s regional and sector allocations. Option C incorrectly assumes that outperforming any index demonstrates investment skill. Benchmark selection must occur independently of the desired performance conclusion. Option D is also incorrect because a risk-free rate may be used when calculating certain risk-adjusted measures, such as the Sharpe ratio, but it is not an appropriate substitute for the fund’s primary market benchmark.

The Retail Securities syllabus requires the selection and evaluation of benchmarks, comparison of portfolio performance, and analysis of active and passive equity-management techniques.

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