Change in investment policy refers to a shift in a pooled investment vehicle's investment strategy or objectives. This can occur for various reasons, such as changes in market conditions, regulatory requirements, or the investment manager's outlook.
Which of the following best describes a change in investment policy?
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A) A change in investment policy refers to a shift in a pooled investment vehicle's investment strategy or objectives. B) Asset allocation is dividing a portfolio among different asset classes. C) Investment style refers to the specific approach taken by an investment manager. D) An investment vehicle is a product investors use to gain exposure to financial markets.
What is a potential consequence of a change in investment policy for a pooled investment?
A) A change in investment policy does not directly impact the investment manager's compensation structure. B) A change in investment policy can result in a shift in the risk and return profile of the investment. C) A change in investment policy does not directly impact the investment's liquidity. D) A change in investment policy does not directly impact the investment's expense ratio.
In the late 1990s, many pooled investments shifted their investment policies to focus on technology stocks as the sector experienced rapid growth and high returns. However, this change in investment policy led to increased risk and volatility in these funds, which ultimately resulted in significant losses for investors during the dot-com crash of 2000-2002.
An investment adviser notices that a mutual fund in a client's portfolio has recently changed its investment policy to focus on high-yield bonds. What action might the adviser recommend to the client?
A) Increasing the allocation to the mutual fund may expose the client to higher risk due to the change in investment policy. B) Reallocating assets to a more conservative bond fund can help maintain the client's desired risk profile. C) Selling all mutual fund shares and investing in individual high-yield bonds may not provide the same diversification benefits as a pooled investment. D) The change in investment policy can impact the client's portfolio by shifting the risk and return profile of the mutual fund.
An investment adviser notices that a mutual fund in a client's portfolio has recently changed its investment policy to focus on high-yield bonds, which carry a higher risk of default. The adviser may recommend that the client reallocate their assets to a more conservative bond fund to maintain their desired risk profile.
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