Performance Evaluation of Active vs. Passive Investment Strategies

Imagine you are a portfolio manager assessing the performance of two distinct investment strategies over a five-year period. The first strategy is an active equity portfolio, while the second one is a passive index fund that tracks the S&P 500. Below are the annual returns of both strategies:

• Active Equity Portfolio: 10%, 12%, 8%, 15%, 9%
• Passive Index Fund: 8%, 10%, 7%, 13%, 11%

Using the information provided, evaluate the performance of both strategies. Focus on metrics such as the Sharpe ratio, alpha, and information ratio. Conclude with a recommendation for a potential investor based on your analysis.