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

Which statement best describes tactical asset allocation as used by a portfolio manager?

Tactical asset allocation means temporarily moving away from the long-term strategic weights to exploit short-term market opportunities or perceived mispricing. It is usually done within agreed limits, and the portfolio is expected to return to the strategic allocation afterwards.

  1. AHolding fixed long-term weights regardless of market conditions
  2. BTemporarily deviating from the strategic weights to exploit short-term market opportunitiesCorrect
  3. CSelecting stocks purely on the basis of past price patterns
  4. DAllocating the entire portfolio to cash permanently

Explanation

Strategic allocation sets the long-term target weights from the client's objectives. Tactical allocation makes short-term departures from those weights to take advantage of perceived mispricing or market conditions, typically within agreed ranges. Fixed weights describes strategic allocation.

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