Jane Smith is a portfolio manager responsible for a large diversified investment fund. She is currently evaluating her fund's performance over the past year, and she has identified that the fund's return was 12%. To compare the fund's performance, she needs to select an appropriate benchmark. The three benchmarks under consideration are: Benchmark A: A market capitalization-weighted index of large-cap US stocks, which returned 10% over the same period. Benchmark B: A customized benchmark reflecting the fund's specific asset allocation of 60% equities, 30% fixed income, and 10% alternative investments, which returned 11% over the same period. Benchmark C: A peer group average of funds with similar strategies and risk profiles, which had an average return of 14%. Given this information, which benchmark should Jane select as the most appropriate reference for evaluating her fund's performance?

Exam

CFA Level 3

Section

Difficulty

Portfolio Management and Wealth Planning

Selecting an Appropriate Benchmark for Performance Evaluation

Hard Performance Evaluation Benchmarking

Jane Smith is a portfolio manager responsible for a large diversified investment fund. She is currently evaluating her fund's performance over the past year, and she has identified that the fund's return was 12%. To compare the fund's performance, she needs to select an appropriate benchmark. The three benchmarks under consideration are:

Benchmark A: A market capitalization-weighted index of large-cap US stocks, which returned 10% over the same period.
Benchmark B: A customized benchmark reflecting the fund's specific asset allocation of 60% equities, 30% fixed income, and 10% alternative investments, which returned 11% over the same period.
Benchmark C: A peer group average of funds with similar strategies and risk profiles, which had an average return of 14%.

Given this information, which benchmark should Jane select as the most appropriate reference for evaluating her fund's performance?

Benchmark A

Benchmark B

Benchmark C

Hint

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