Final answer:
The optimal strategy for changing the weights of investment components in a global portfolio is influenced by economic factors. Dynamic and Tactical Asset Allocation strategies allow investors to adjust their portfolios in response to changes, while Strategic Asset Allocation sets a fixed asset mix. Mean-Variance Optimization is a tool used for balance based on risk and return.
Step-by-step explanation:
Changing the component weights of a global investment portfolio based on factors such as trend growth, market integration, business cycle stages, and fiscal or monetary policies, along with the trend in current account balances, is a matter of applying the right investment strategy.
Among the options provided, Dynamic Asset Allocation (A) and Tactical Asset Allocation (B) are more focused on modifying portfolio weights in response to changing economic conditions. Strategic Asset Allocation (C), on the other hand, sets long-term investment objectives and adheres to a fixed asset mix. Mean-Variance Optimization (D) is a tool that can be used within these strategies to structure or balance a portfolio based on expected returns and risk.
Investors often have to update their portfolios due to various economic indicators and trends. For instance, if market trends indicate strong growth, an investor may wish to increase the weight of equities in their portfolio. If different markets are becoming more integrated, this may lead to a reassessment of international investments to capitalize on the correlation between markets.
Investors also adjust their portfolios to react to where a country is in its business cycle, potentially shifting towards more defensive stocks in a downturn. Additionally, changes in fiscal or monetary policy can influence interest rates and therefore affect bond and equity pricing. Finally, trends in current account balances might indicate economic health and potential forex risks that need to be accounted for in portfolio decisions.