A portfolio manager is constructing a global equity portfolio for a Canadian client. Which of the following best exemplifies geopolitical diversification in the context of portfolio construction?

Question: A portfolio manager is constructing a global equity portfolio for a Canadian client. Which of the following best exemplifies geopolitical diversification in the context of portfolio construction?

Answer options:

• Investing in companies across various industries, such as technology, healthcare, and finance, within Canada. ✅ Allocating investments to different developed markets like the US, Europe, and Japan, alongside emerging markets.
• Diversifying between large-cap, mid-cap, and small-cap stocks within a single country's equity market.
• Investing in both growth stocks and value stocks to capture different market cycles.

Correct answer: Allocating investments to different developed markets like the US, Europe, and Japan, alongside emerging markets.

Explanation: Geopolitical diversification involves spreading investments across different countries and regions to reduce dependence on any single political or economic environment. Allocating across developed and emerging markets directly achieves this by exposing the portfolio to a variety of governmental and economic systems.