You are a fund manager of a passive mutual fund. Your performance benchmark is the index of the largest 30 German stocks, DAX 30. HeidelbergCement has performed better than the DAX index recently, while Covestro has performed worse than the index. As a result, HeidelbergCement has been recently included in the DAX 30 index (its weight in the index is 1%), while Covestro has been excluded from the index (its weight in the index before exclusion was 0.5%)
Which of the following actions should you undertake as a fund manager of the fund?

Question

You are a fund manager of a passive mutual fund. Your performance benchmark is the index of the largest 30 German stocks, DAX 30. HeidelbergCement has performed better than the DAX index recently, while Covestro has performed worse than the index. As a result, HeidelbergCement has been recently included in the DAX 30 index (its weight in the index is 1%), while Covestro has been excluded from the index (its weight in the index before exclusion was 0.5%) 
 Which of the following actions should you undertake as a fund manager of the fund?

Accepted Answer

You should sell all holdings in Covestro and buy HeidelbergCement such that it has 1% in your portfolio

Answer

You should not make any changes to your porftolio since it is passive

Answer

You should sell all holdings in Covestro and buy HeidelbergCement such that it has 0.5% in your portfolio

Answer

Since you need to outperform your benchmark and HeldelbergCement has performed better than the index, you should buy HeidelbergCement such that it has more than 1% in your fund’s portfolio

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You are a fund manager of a passive mutual fund. Your performance benchmark is t...

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