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Answer: ETF 2
## Explanation For a tactical adjustment focusing on a specific area of technology, ETF 2 (Broad-based) is most suitable because: 1. **Higher Liquidity**: ETF 2 has the highest ratio of average dollar trading volume to average assets (12.1), indicating better liquidity. This is crucial for tactical adjustments where quick entry and exit are important. 2. **Lower Management Fee**: ETF 2 has the lowest annual management fee (10 basis points), making it more cost-effective for short-term tactical positions. 3. **Thematic vs Broad-based**: While the manager wants to focus on technology, a broad-based technology ETF would provide diversified exposure to the sector rather than concentrating on specific themes, which may be more appropriate for tactical adjustments. - ETF 1 has lower liquidity (3.5 ratio) and higher fees (12 bps) - ETF 3 has moderate liquidity (7.5 ratio) but the highest fees (20 bps) For tactical portfolio adjustments, liquidity and cost efficiency are key considerations.
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| ETF type | ETF 1 (Thematic) | ETF 2 (Broad-based) | ETF 3 (Thematic) |
|---|---|---|---|
| Ratio of average dollar trading volume to average assets | 3.5 | 12.1 | 7.5 |
| Annual management fee (basis points) | 12 | 10 | 20 |
Which ETF would be most suitable for the tactical adjustment to the portfolio?
A
ETF 1
B
ETF 2
C
ETF 3