A client, aged 45, has a long-term investment horizon and a moderate risk tolerance. Their current portfolio asset allocation is 60% equities, 30% fixed income, and 10% cash. They believe Canadian equities are undervalued due to recent market volatility and decide to temporarily increase their allocation to Canadian equities by 5% from their domestic equity portion. This decision is an example of which portfolio management strategy?

Question: A client, aged 45, has a long-term investment horizon and a moderate risk tolerance. Their current portfolio asset allocation is 60% equities, 30% fixed income, and 10% cash. They believe Canadian equities are undervalued due to recent market volatility and decide to temporarily increase their allocation to Canadian equities by 5% from their domestic equity portion. This decision is an example of which portfolio management strategy?

Answer options: ✅ Tactical asset allocation

• Strategic asset allocation
• Diversification
• Passive investing

Correct answer: Tactical asset allocation

Explanation: Tactical asset allocation involves making short-term adjustments to a portfolio's asset mix away from the strategic allocation based on market forecasts or perceived opportunities, such as temporarily overweighting Canadian equities due to a belief they are undervalued.