NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Portfolio Management Process
A client's PMS portfolio drifts so that equity rises from the target 60% to 70% after a market rally. Rebalancing to the policy allocation would involve which action?
The manager should sell part of the equity holding and reinvest in the underweight asset classes. Rebalancing restores the strategic target allocation of 60% equity after a rally has pushed it to 70%, keeping the portfolio in line with the client's risk profile.
- ABuying more equity to ride the trend
- BSelling some equity and adding to other asset classesCorrect
- CDoing nothing because equity is performing
- DMoving the entire portfolio to cash
Explanation
Rebalancing restores the target weights. Equity is overweight by 10 points, so some is sold and proceeds are shifted to underweight asset classes.
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