The "IPS" (Investment Policy Statement) for a qualified retirement plan under ERISA states the asset allocations permitted in the plan. The IPS requires that 50% of assets be placed in stocks; and 50% of assets be placed in fixed income securities. The allocation percentage is allowed to vary by up to 10%, giving the manager the ability to time the market to enhance returns. The investment manager expects a bull market in equities and increases the equities allocation to 65% and reduces the fixed income allocation to 35%. The equities market rallies and the overall portfolio increases by 18% for the year. At the end of the year, the manager rebalances, bringing the portfolio allocation back to 50/50. The investment manager:________.

Answers

Answer 1

Answer: Okay so The investment manager has deviated from the initial asset allocation specified in the IPS, which was 50% in stocks and 50% in fixed income securities. They increased the allocation to stocks to 65% and reduced the fixed income allocation to 35%, taking advantage of their 10% allowable variation.

However, after the equities market rally and an 18% increase in the overall portfolio value, the manager rebalanced the portfolio back to the original 50/50 allocation, as per the IPS guidelines.

In summary, the investment manager initially deviated from the IPS allocation, but they eventually adhered to the IPS guidelines by rebalancing the portfolio back to 50% stocks and 50% fixed income securities at the end of the year. This rebalancing action aligns with their responsibilities outlined in the IPS.

Answer 2

Answer:

Final answer:

The investment manager deviated from the initial 50/50 allocation ratio between stocks and fixed-income securities in anticipation of a bull market, leading to an 18% boost in the portfolio for the year. They then rebalanced the portfolio to the initial 50/50 ratio at the end of the year.

Explanation:

The investment manager, in this scenario, utilized flexibility within the Investment Policy Statement (IPS) to deviate from the prescribed 50/50 asset allocation between stocks and fixed-income securities. Noting an expected bull market in equities, they increased the equities allocation to 65%, leading to a portfolio increase of 18% for the year. At the end of the year, they adhered to the IPS by rebalancing the portfolio back to a 50/50 allocation.

Learn more about Investment Policy Statement (IPS) here:

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