A portfolio manager is assessing a client's global equity portfolio, which has historically been benchmarked against the S&P/TSX Composite Index. The manager notices that over the past two years, the portfolio's returns have shown a significantly higher correlation with the MSCI World Index and includes a substantial allocation to U.S. and European equities. This situation most likely indicates an issue with:

Question: A portfolio manager is assessing a client's global equity portfolio, which has historically been benchmarked against the S&P/TSX Composite Index. The manager notices that over the past two years, the portfolio's returns have shown a significantly higher correlation with the MSCI World Index and includes a substantial allocation to U.S. and European equities. This situation most likely indicates an issue with:

Answer options: ✅ Style drift

• Tracking error
• Information ratio efficiency
• Alpha generation

Correct answer: Style drift

Explanation: Style drift occurs when a portfolio's actual investment style or asset allocation deviates significantly from its stated style or benchmark, leading to a mismatch in performance evaluation. In this case, the shift from Canadian equities towards global equities suggests style drift relative to the S&P/TSX Composite Index.