A consultant for a large corporate pension plan is looking at three funds (Funds X, Y, and Z) as part of the pension plan’s global fixed-income allocation. All three funds use the Bloomberg Barclays Global Aggregate Bond Index as a benchmark. Exhibit 7 provides characteristics of each fund and the index. Identify the approach (pure indexing, enhanced indexing, or active management) that is most likely used by each fund and support your choices by referencing the information in Exhibit 7.

Transcribed Image Text:

EXHIBIT 7 Characteristics of Funds X, Y, and Z and the Bloomberg Barclays Global Aggregate Bond Index Risk and Return Characteristics Average maturity (years) Modified duration (years) Average yield to maturity (%) Convexity Quality AAA AA A BBB BB Not rated Maturity Exposure 0-3 years 3-5 years 5-10 years 10+ years Bloomberg Barclays Fund X Fund Y Fund Z Global Aggregate Bond Index 8.61 6.37 1.49 0.65 8.35 6.35 1.42 0.60 9.45 7.37 1.55 0.72 41.10 41.20 40.11 15.32 15.13 14.15 28.01 28.51 29.32 14.53 14.51 15.23 0.59 0.55 1.02 0.45 0.10 0.17 21.43 21.67 19.20 23.01 24.17 22.21 32.23 31.55 35.21 23.33 22.61 23.38 8.34 6.34 1.43 0.60 41.24 15.05 28.78 14.55 0.35 0.05 21.80 24.23 31.67 22.30