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Answer: The returns of comparable asset groups consistently mirror exposures to specific systematic factors.
The correct answer is **C** because the focus on strategic asset allocation (SAA) stems from key investment principles. One such principle is that returns of similar asset groups (e.g., long-term debt) reliably reflect exposures to systematic factors (e.g., interest rate changes). - **A** is incorrect because assets with low (not high) correlation improve the risk-return trade-off. - **B** is incorrect because systematic (not nonsystematic) risk primarily drives long-term portfolio value changes.
Author: LeetQuiz Editorial Team
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Which of the following principles best justifies the emphasis on strategic asset allocation in the construction of a client's Investment Policy Statement (IPS)?
A
Incorporating assets with high correlation enhances the risk-return profile.
B
Nonsystematic risk is the primary driver of a portfolio's long-term value fluctuations.
C
The returns of comparable asset groups consistently mirror exposures to specific systematic factors.
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