CFA Level I · CFA Level I Exam · Benchmarking Returns
An analyst evaluates a small-cap value manager against a broad large-cap growth index. The manager's holdings have very little in common with the index's constituents. Which quality of a valid benchmark is most likely violated?
The appropriateness quality is most likely violated. A valid benchmark should be consistent with the manager's style and market segment. A broad large-cap growth index has little overlap with a small-cap value mandate, so comparing results against it would be misleading.
- AAppropriateCorrect
- BUnambiguous
- CReflective of current investment opinions
Explanation
An appropriate benchmark is consistent with the manager's investment style, market segment and approach. A large-cap growth index does not match a small-cap value mandate. Unambiguous concerns clearly identifiable constituents and weights, which is unrelated to this mismatch.
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