Explanation:
A is correct. Evaluating the diversification of the fund's investment portfolio would be a useful strategy to assess whether the fund is properly managing risk and aligning with its long-term expectations. Lack of diversification could explain the unexpected high level of short-term volatility, allowing the CRO to determine if the activities are consistent with the expected risk profile.
B is incorrect. Investigating the personal investment strategies of the portfolio managers is irrelevant to the fund's activities and performance.
C is incorrect. Relying solely on historic performance data is insufficient for risk evaluation because forward-looking risk measures and current portfolio holdings are necessary to assess current and future risks accurately.
D is incorrect. Consulting with fund investors helps determine their risk tolerance but does not evaluate whether the fund's actual management and current investment activities match the already established expectations and expected risk profile.
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Q.2511 SecureFuture Investments, a prominent global asset management firm, is currently managing a high-profile retirement fund with a long-term investment horizon. Recently, the Chief Risk Officer (CRO), Allison, noted a high level of short-term investment volatility in the fund which contradicted the expected risk profile. Allison decided to conduct a detailed risk monitoring exercise to ensure that the fund's activities are aligned with the fund's expectations and risk profile. In the context of the scenario, which of the following risk monitoring strategies would Allison most likely find useful in determining if the retirement fund's activities are consistent with the fund's expectations?
A
Evaluate the diversification of the fund's investment portfolio.
B
Investigate the personal investment strategies of the portfolio managers.
C
Rely solely on historic performance data for risk evaluation.
D
Consult with fund investors on their risk tolerance.
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