can someone pls explain me the following.
Why is the answer fund 1 and not fund 3
I do get the part related to small cap stocks. What confuses me is the size and the number of securities. Like how does the number of you hold impact your slippage costs, same with the fund size/ I mean if its a big fund size, are we saying that if we sell a big chunk, it will have a big impact. is that what we are implying?
| Fund | Fund Category | Fund Size (AUM) | Number of Securities | Description |
|---|---|---|---|---|
| 1 | Small-cap stocks | Large | Small | Fund 1 focuses on skillfully timing exposures to factors, both rewarded and unrewarded, and to other asset classes. The fund’s managers use timing skills to opportunistically shift their portfolio to capture returns from factors such as country, asset class, and sector. Fund 1 prefers to make large trades. |
| 2 | Large- cap stocks | Large | Large | Fund 2 holds a diversified portfolio and is concentrated in terms of factors. It targets individual securities that reflect the manager’s view that growth firms will outperform value firms. Fund 2 builds up its positions slowly, using unlit venues when possible. |
| 3 | Small- cap stocks | Small | Large | Fund 3 holds a highly diversified portfolio. The fund’s managers start by evaluating the risk and return characteristics of individual securities and then build their portfolio based on their stock-specific forecasts. Fund 3 prefers to make large trades. |