Passive Equity Investing: Replication Methods

ABC Asset Management specializes in passive equity investing and has been employing a variety of replication methods to closely track the performance of its benchmark index. The firm is currently evaluating three different replication techniques to decide on the most effective one for its large-cap equity index fund.

The options under consideration include:

• Full Replication - investing in all the securities in the index in their respective weights.
• Synthetic Replication - using derivatives to create a position that mimics the index's performance without owning all underlying securities.
• Sampling - investing in a representative sample of the securities in the index rather than all securities.

Which of the following replication methods would be most appropriate for ABC Asset Management to use if they are primarily concerned with minimizing tracking error while managing transaction costs?