Explanation:
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).
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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