Final answer:
The correct answer is option b) Tactical asset allocation. The correct strategy to take advantage of an undervalued energy sector is Tactical asset allocation (b), which allows adjusting investments based on sector performance.
Step-by-step explanation:
The correct answer is option b) Tactical asset allocation. This strategy involves adjusting the investment mix to position a portfolio towards sectors or assets the investor believes are undervalued or poised for growth. In the context of a perceived undervaluation in the energy sector, an investor might increase their allocation to energy stocks, energy mutual funds, or other related financial instruments within that sector.
Option a) Dollar cost averaging is a strategy of consistently investing a fixed amount of money over time, regardless of the sector's valuation. Option c) Index funds track predefined indices and aren't tailored to take advantage of undervaluations in specific sectors. Option d) Strategic asset allocation rebalancing involves periodically returning the portfolio back to its original, target allocations, and doesn't focus on exploiting sector undervaluations.
This technique takes advantage of a perceived undervaluation in the energy sector of the economy by adjusting the allocation of assets in a portfolio to capitalize on potential opportunities for growth in that sector. Strategic asset allocation rebalancing involves periodically reassessing the portfolio's asset allocation and making adjustments to maintain a desired balance between different investment categories.