A mutual fund with a beta of 1.1 has outperformed the S&P500 over the last 20 years.We know that this mutual fund manager _______________________.
A) must have had superior stock selection ability
B) must have had superior asset allocation ability
C) must have had superior timing ability
D) may or may not have outperformed the S&P500 on a risk adjusted basis

Question

Quizplus · Accepted Answer

The fact that the mutual fund has a beta of 1.1 means that it is slightly more volatile than the overall market (S&P500). Therefore, it is possible that the higher returns are due to simply taking on more risk rather than superior stock selection, asset allocation or timing ability. It is also important to consider risk-adjusted returns when comparing performance. Therefore, it is possible that the mutual fund may not have outperformed the S&P500 on a risk-adjusted basis.

A Mutual Fund with a Beta of 1