There is a range of approaches that can be adopted in security selection from passive indexing through to a high conviction active approach. More recently, factor investing has also emerged as a combination of these two approaches.
Discuss the similarities and differences between active and passive funds and comment on the evidence on the performance of passive versus active funds. (6 marks)
Stratified sampling is a process applied by some index funds. Explain the process of indexing by stratified sampling and discuss when it would be more appropriate to use this approach rather than full index replication, commenting on the strengths and weaknesses of the respective approaches. (6 marks)