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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Portfolio Management Process

Under the strategic asset allocation approach used in portfolio construction, how is the target allocation between asset classes usually treated?

Strategic asset allocation sets long-term target weights from the client's objectives and risk profile, and the portfolio is periodically rebalanced back to those targets. It is not changed with short-term market views, which is tactical allocation, and it is decided before security selection.

  1. AIt is set according to long-term objectives and risk profile, and brought back to target by periodic rebalancingCorrect
  2. BIt is changed every week according to short-term market views
  3. CIt is fixed once and never reviewed, even if the client's circumstances change
  4. DIt is decided only after individual stocks are picked

Explanation

Strategic allocation sets long-term target weights based on client objectives and risk profile. Drift from the target as markets move is corrected by rebalancing. Frequent short-term changes describe tactical allocation instead.

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