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CFA Level I · CFA Level I Exam · Portfolio Management: An Overview

A manager's portfolio has a strategic allocation of 60% equities and 40% bonds. After a market rally, the portfolio is 68% equities and 32% bonds, with no change in client circumstances. The manager sells equities and buys bonds to restore 60/40. This action is best described as part of the:

This is the feedback step, specifically rebalancing to the policy weights. The strategic allocation and client circumstances are unchanged, and the drift resulted from market movement. Trades restore the target, so it is neither a revised plan nor a tactical view-based shift.

  1. Afeedback step, as portfolio rebalancing to the policy weightsCorrect
  2. Bplanning step, as a revision of the strategic asset allocation
  3. Cexecution step, as a tactical shift based on a new market view

Explanation

The policy target is unchanged and the drift came from market movements, so restoring the weights is rebalancing, which is part of feedback (monitoring and rebalancing). It is not a revision of the strategy, and it is not driven by a new market view, so it is not a tactical shift.

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