Sarah Berndt recently hired Phil Ruyle as a new portfolio manager with her firm, Private Wealth Consultants. Ruyle spends his first day with the firm shadowing Berndt and learning about her process. During the day, Berndt makes two statements regarding the asset allocation process: | Statement 1: | The downside to the strategic asset allocation process is that if the long-term capital market expectations that formed the basis of the strategic asset allocation change dramatically, the clients long-term returns are likely to suffer significantly.
| | Statement 2: | Tactical asset allocation has no role in the formal asset allocation process. |
With regard to the statements made by Berndt:
| A) | Statement 1 is correct; Statement 2 is correct. |
| B) | Statement 1 is incorrect; Statement 2 is incorrect. |
| | C) | Statement 1 is incorrect; Statement 2 is correct. |
| | D) | Statement 1 is correct; Statement 2 is incorrect. |
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Answer and Explanation
Both of Berndts statements are incorrect. Once the strategic asset allocation has been implemented, it should be monitored regularly and include a feedback loop such that changes in long-term market factors are incorporated back into the process and an assessment can be made to determine whether adjustments to the strategic allocation are justified. The key point here is that asset allocation is a flowing, flexible process. Also, if identified market changes are only short-term in nature, the manager should consider implementing tactical asset allocation measures which have been approved in the IPS. Tactical asset allocation definitely has a role in the formal asset allocation process.
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发表于 2008-9-17 11:03
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