问题如下：
With the benchmark selected, Hudgens provides guidelines to Soto directing her to (1) use the most cost-effective method to track the benchmark and (2) provide low tracking error.
To meet both of Hudgens’s guidelines for the pension’s bond fund investment, Soto should recommend:
选项：
A. pure indexing.
B. enhanced indexing
C. active management.
解释：
B is correct.
Low tracking error requires an indexing approach. A pure indexing approach for a broadly diversified bond index would be extremely costly because it requires purchasing all the constituent securities in the index. A more efficient and cost-effective way to track the index is an enhanced indexing strategy, whereby Soto would purchase fewer securities than the index but would match primary risk factors reflected in the index. Closely matching these risk factors could provide low tracking error.
