120. A portfolio manager decides to temporarily invest more of a portfolio in equities than the
investment policy statement prescribes, because he expects equities will generate a higher
return than other asset classes. This decision is most likely an example of:
A. rebalancing.
B. tactical asset allocation.
C. strategic asset allocation.
Answer = B
Basics of Portfolio Planning and Construction,” Alistair Byrne, CFA, and Frank E. Smudde, CFA
2011 Modular Level I, Vol. 4, pp. 450, 467, 477
Study Session 12-54-g
Discuss the principles of portfolio construction and the role of asset allocation in relation to the
IPS.
B is correct. Tactical asset allocation is the decision to deliberately deviate from the policy
exposures to systematic risk factors with the intent to add value based on forecasts of the near-
term returns of those asset classes.
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