A financial advisor recommends investing a client's entire non-registered portfolio in a single exchange-traded fund (ETF) that tracks a broad Canadian equity market index. While this offers broad market exposure, what specific type of diversification is still lacking in this strategy?

Question: A financial advisor recommends investing a client's entire non-registered portfolio in a single exchange-traded fund (ETF) that tracks a broad Canadian equity market index. While this offers broad market exposure, what specific type of diversification is still lacking in this strategy?

Answer options: ✅ Geographic diversification, as it's concentrated in one country.

• Sector diversification, as the ETF covers multiple sectors within Canada.
• Asset class diversification, as it's solely equities.
• Manager diversification, as it's a passively managed index fund.

Correct answer: Geographic diversification, as it's concentrated in one country.

Explanation: While a broad Canadian equity ETF provides diversification across various Canadian companies and sectors, it lacks geographic diversification by being concentrated only in the Canadian market, leaving the client exposed to Canada-specific economic and political risks.