Suppose a PM who manages against the S&P 500 as the fund's benchmark puts 1% of the fund's assets in the common stock of General Electric. Is the PM betting for or against General Electric, and other stocks in the S&P 500?
In the fall of 1997, General Electric represented approximately 3% of the S&P 500 index. Therefore, if a fund were using the S&P 500 as a benchmark and putting 1% of its assets into General Electric, the fund would be implicitly making a large bet against General Electric. In this situation, the fund is also implicitly betting that other stocks in the S&P 500 will outperform General Electric. If the manager of such a fund really likes General Electric, he or she must put more than 3% of the fund's assets in that stock.
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A. expansion B. design C. analysis D. simplification
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Indicate whether the statement is true or false
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