Sarkar indicates that there are two alternate methods

Sarkar indicates that there are two alternate methods to implement the investment
approach favored by Hayes:
Method 1
Under this method cash in the portfolio is equitized using a long futures position. The
cash is invested in short to medium term fixed income securities.
Method 2
The manager will only invest in stocks that are expected to outperform the index. If the
manager has no opinion on a stock, or if the stock is expected to underperform, then the
stock will not be included in the investment portfolio.
Bayside Foundation
The investment policy committee for Bayside Foundation follows a fairly conservative
investment strategy and pays particular attention to the minimization of tracking error.
Bayside seeks to achieve two specific objectives:
Objective 1
Invest a portion of the portfolio in an index with a large cap bias. In addition to
minimizing tracking error, Bayside would also like to ensure that the index strategy
involves minimal rebalancing costs.
Objective 2
Allocate another portion of the portfolio so that it earns alpha associated with small cap
stocks but without the associated small cap market beta exposure.
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Daniels Corporation Pension Plan
Daniels Corporation wishes to allocate a portion of its pension portfolio to an active
money manager with a value investment style. Sarkar has collected information on three
active portfolio managers and will recommend one of them to Daniels. Selected
information for the three managers is presented below in Exhibit 1.
Exhibit 1
Investment Manager Data
December 31, 2009
Manager Manager Manager
A B
Assets under management ($ millions) 2,876 3,752 4,619
P/E 8.7 17.5 23.1
Dividend yield 3.50% 1.70% 1.00%
EPS growth (5-year projected) 6.75% 5.25% 14.50%
Portfolio active return 3.50% 3.00% 4.30%
Portfolio tracking risk 5.00% 1.50% 6.00%
Style fit 87.00% 95.00% 85.00%
19. In order to meet the objectives of Hayes University Endowment, the most
appropriate investment approach is an:
C
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