Explanation:
For a tactical adjustment focusing on a specific area of technology, ETF 2 (Broad-based) is most suitable because:
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.
Lower Management Fee: ETF 2 has the lowest annual management fee (10 basis points), making it more cost-effective for short-term tactical positions.
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.
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
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