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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Construction Process

Which statement best describes strategic asset allocation as against tactical asset allocation?

Strategic asset allocation sets long-term target weights based on the client's objectives and risk profile, while tactical allocation makes temporary short-term departures from those weights to exploit market views. The strategic mix is the anchor and tactical shifts are around it.

  1. AStrategic allocation sets long-term target weights based on the client's objectives and risk profile, while tactical allocation makes short-term deviations to exploit market viewsCorrect
  2. BStrategic allocation changes weights frequently based on market timing, while tactical allocation is fixed for life
  3. CStrategic allocation applies only to debt, while tactical allocation applies only to equity
  4. DStrategic allocation ignores the client's risk profile, while tactical allocation depends on it

Explanation

Strategic asset allocation sets long-term policy weights derived from the client's return needs, risk tolerance and horizon. Tactical allocation temporarily deviates from those weights to take advantage of short-term market conditions. The other options reverse or invent distinctions.

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