Ch.11 · Comparing Fund Performance · medium
A mutual fund fact sheet shows a scheme's 3-year return as 14% and its benchmark's 3-year return as 11%. What does this indicate?
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EXPLANATION
When a scheme outperforms its benchmark, the excess return is called 'alpha'. A 14% scheme return vs 11% benchmark = 3% alpha. This suggests the fund manager's stock selection and active decisions have added value over simply tracking the index.
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