Question

1) An investment advisor is comparing performance of two mutual funds each of which is designed to outperform the S&P 500.

The Freedelity Fund returned 19%

The JPStanley Fund returned 16%.

Based on the information above, which is the better fund in terms of the manager’s ability to select stocks?

A. Freedelity Fund has better stock selection

B. JP Stanley Fund has better stock selection

C. S&P 500 Index Fund has better stock selection

D. Freedelity & JP Stanley Funds have the same level of stock selection

E. Cannot tell from information provided

Answer 1

The rate of return does not provide with stock selection from the managers perspective because the rate of return of the index is to be known in order to compare the rate of return of the particular funds, so there is no enough availability of informations.

we need the rate of return of the market in order to compare the rate of return of these funds and we also need the allocation of resources

Correct answer will be option (E) cannot tell from the options provided.