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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 used in portfolio construction?

Strategic asset allocation means setting long-term target weights across asset classes according to the client's objectives, time horizon and risk tolerance. It differs from tactical allocation, which makes short-term deviations, and from security selection, which picks individual instruments within each asset class.

  1. ASetting long-term target weights for asset classes based on the client's objectives and risk toleranceCorrect
  2. BShifting weights frequently to exploit short-term market views
  3. CChoosing the best-performing stock within each sector
  4. DAllocating only to assets that beat the benchmark last year

Explanation

Strategic asset allocation fixes long-term policy weights aligned with the client's return needs and risk tolerance, revisited only when circumstances change. Short-term shifts describe tactical allocation, and stock picking is security selection.

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