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ESG indices that exclude economically meaningful sectors will most likely:
Correct Answer: B
Exclusionary ESG indices oftenomit entire sectors(e.g., fossil fuels, tobacco, weapons), which leads tohigher tracking errorrelative to traditional benchmarks like theS&P 500 or MSCI World Index. Tracking error measures how much a portfolio's returnsdeviatefrom its benchmark. Because ESG indices havesector biases, they tend to experiencegreater performance divergencethan conventional index funds. References: * MSCI ESG Index Performance Report * CFA Institute ESG Investing Handbook * Morningstar ESG Fund Tracking Error Analysis ========