CFA Level I · CFA Level I Exam · Benchmarking Returns
A benchmark is described as having holdings that the manager could buy in the market with reasonable cost and liquidity, so that the benchmark's return represents an alternative the investor could actually have earned. This quality is best described as being:
The quality is investability. An investable benchmark can be replicated by holding its constituents at reasonable cost and liquidity, so its return is a real passive alternative the investor could have earned instead of paying for active management.
- AinvestableCorrect
- Bunambiguous
- Cheld in current investment opinions
Explanation
Investable means it is possible to forgo active management and simply hold the benchmark's constituents in their weights. This makes the benchmark a real passive alternative. Unambiguous refers to clear identification of constituents and weights.
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