Alpha (α) measures a fund’s excess return relative to its benchmark. A positive alpha indicates outperformance, while a negative alpha means underperformance.

Why is Option A Correct?

A fund manager aims to improve alpha to outperform the benchmark (e.g., S&P 500, FTSE 100).

If a fund’s alpha is negative, it has not beaten the benchmark, indicating poor active management.

Why Not Other Options?

B (Easier to manage) → A high-alpha strategy often requires active management, which can be complex.

C (Improves beta) → Alpha is independent of beta (systematic risk).

D (Attractive to risk-averse clients) → High alpha does not necessarily mean low risk.

???? Reference: CFA Institute (Alpha & Beta), CISI Wealth & Investment Management.