NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Construction Process
Rohan, a client, holds 70% equity and 30% debt as his strategic asset allocation. After a strong equity rally his portfolio is 80% equity and 20% debt. His adviser sells equity and buys debt to restore 70:30. This action is best described as:
This is portfolio rebalancing. The adviser is bringing the drifted weights back to the strategic 70:30 target by selling the outperforming equity and buying debt. It is not tactical allocation, because no deliberate deviation based on a market view is being made.
- ATactical asset allocation
- BPortfolio rebalancingCorrect
- CMarket timing
- DSecurity selection
Explanation
Restoring the portfolio to its target weights after drift caused by differing asset returns is rebalancing. Tactical allocation would deliberately deviate from the strategic weights based on market views, which is not the case here.
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