Explanation

This question tests the understanding of different portfolio management strategies:

Security Selection: Refers to choosing specific securities within an asset class (e.g., picking individual stocks or bonds).

Portfolio Rebalancing: Involves bringing the portfolio back to its target asset allocation when market movements cause deviations from policy weights.

Tactical Asset Allocation: Involves making short-term adjustments to the strategic asset allocation based on capital market expectations to exploit perceived market inefficiencies or opportunities.

Why C is correct:

• The fund manager is adjusting the portfolio's equity allocation away from the policy weights
• This adjustment is based on "short-term capital market expectations"
• The goal is to "take advantage" of these expectations
• These characteristics align perfectly with tactical asset allocation, which involves short-term deviations from strategic policy weights to capitalize on market opportunities

Why A is incorrect: Security selection focuses on choosing specific securities within an asset class, not adjusting the overall allocation between asset classes.

Why B is incorrect: Portfolio rebalancing involves returning to policy weights, not deviating from them. Rebalancing would mean buying more equities to return to the target allocation, not holding less.