John, a 40-year-old, has a portfolio split evenly between Canadian equities and Canadian fixed income. He believes that oil prices will significantly increase over the next year due to global supply disruptions, which would primarily benefit Canadian energy companies. To increase his exposure to this potential upside while maintaining some diversification, which adjustment would be most appropriate?

Question: John, a 40-year-old, has a portfolio split evenly between Canadian equities and Canadian fixed income. He believes that oil prices will significantly increase over the next year due to global supply disruptions, which would primarily benefit Canadian energy companies. To increase his exposure to this potential upside while maintaining some diversification, which adjustment would be most appropriate?

Answer options:

• Sell all his fixed income and invest it into a broad North American energy sector ETF. ✅ Increase his allocation to Canadian equities, specifically towards energy sector companies or ETFs, while maintaining his fixed income holdings.
• Shift his entire portfolio to US equities, as they are less correlated with Canadian oil production.
• Invest only in a leveraged commodity futures contract tracking crude oil prices.

Correct answer: Increase his allocation to Canadian equities, specifically towards energy sector companies or ETFs, while maintaining his fixed income holdings.

Explanation: Increasing his allocation to Canadian equities, specifically in the energy sector, directly targets his investment thesis regarding rising oil prices and Canadian beneficiaries. Maintaining fixed-income provides some balance and diversification, mitigating concentration risk compared to a complete shift.