A portfolio manager has established a strategic asset allocation of 60% equities and 40% fixed income for a client. Due to a significant market rally, the portfolio's current allocation has shifted to 70% equities and 30% fixed income. If the manager rebalances back to the strategic allocation by selling equities and buying fixed income, which rebalancing trigger are they primarily responding to?

Question: A portfolio manager has established a strategic asset allocation of 60% equities and 40% fixed income for a client. Due to a significant market rally, the portfolio's current allocation has shifted to 70% equities and 30% fixed income. If the manager rebalances back to the strategic allocation by selling equities and buying fixed income, which rebalancing trigger are they primarily responding to?

Answer options:

• Time-based rebalancing
• Calender-based rebalancing ✅ Corridor-based rebalancing
• Opportunity-based rebalancing

Correct answer: Corridor-based rebalancing

Explanation: Corridor-based rebalancing involves rebalancing the portfolio when an asset class deviates by a certain percentage or absolute amount from its target weight, as evidenced by the 10% drift in equities in this scenario.