A client's strategic asset allocation is 50% Canadian Equities, 30% US Equities, and 20% Fixed Income. Their current portfolio values are $600,000 in Canadian Equities, $240,000 in US Equities, and $160,000 in Fixed Income. If the portfolio manager has a corridor-based rebalancing rule of +/- 5% for each asset class, which asset class(es) currently require rebalancing?

Question: A client's strategic asset allocation is 50% Canadian Equities, 30% US Equities, and 20% Fixed Income. Their current portfolio values are $600,000 in Canadian Equities, $240,000 in US Equities, and $160,000 in Fixed Income. If the portfolio manager has a corridor-based rebalancing rule of +/- 5% for each asset class, which asset class(es) currently require rebalancing?

Answer options: ✅ Canadian Equities only

• US Equities and Fixed Income
• Canadian Equities and US Equities
• No asset classes require rebalancing

Correct answer: Canadian Equities only

Explanation: The total portfolio is $1,000,000. Target Canadian Equities = $500,000 (50%). Current Canadian Equities = $600,000 (60%). Deviation is +10%, exceeding the 5% corridor. Target US Equities = $300,000 (30%). Current US Equities = $240,000 (24%). Deviation is -6%, exceeding the 5% corridor. Target Fixed Income = $200,000 (20%). Current Fixed Income = $160,000 (16%). Deviation is -4%, within the 5% corridor. Therefore, both Canadian and US Equities require rebalancing.