Pure indexing

CFA Level III Fixed Income
#1

Hi All - I`m reading Kaplan Schweser material and to my opinion came across contradicting definitions of pure indexing.

In section 18b. Fixed income mandates - the definition is the following:
"Pure indexing - attempts to replicate the performance of na bond index. It targets zero active return and risk. Unlike equity market, the large number of individual bonds in most indexes and their potential lack of liquidity makes literal duplication of the index (holding every issue in the same weight as in the index) impractical.

In section 19.f. - Index-based investing, the definition is the following:

The Pure index or full replication approach requires holding all the securities and the weighting them as in the index.

Could someone explain please - which one is correct?

Thanks

#2

Pure indexing/full replication means the same thing. Just stick with the second bold definition. On the exam we may be asked a shortcoming of pure indexing. In which case you can pull from the first bold definition above.