Final answer:
The activity most likely to be a part of the execution step of the portfolio management process is rebalancing the portfolio to the desired asset class exposures. This step involves actual trading to align the portfolio with the planned asset allocation and maintain the intended risk profile.
"The correct option is approximately option C"
Step-by-step explanation:
The activity most likely to be performed as part of the execution step of the portfolio management process among the options given is C) Rebalancing the portfolio to the desired asset class exposures. Execution involves the actual buying and selling of securities to adjust the portfolio as per the planned asset allocation. Completing the investment policy statement (A) is a chore that would typically be done in the planning phase, prior to execution. Top-down analysis based on macroeconomic conditions (B) is a type of analytical approach that might inform planning or security selection but is not in itself an execution task.
For instance, in execution, if an economist's model (refer to your previous question about a stock market prediction model), indicates that the stock market is likely to favor a certain sector, the portfolio manager might execute trades to tilt the portfolio towards this sector. The execution step is where the portfolio manager's decisions and plans are put into action on the trading floor.
Asset allocation and rebalancing are core components of the execution phase. If an investor has decided they want their portfolio to have a mix of 60% stocks and 40% bonds, but over time the stock market has risen significantly, causing their portfolio to drift to 70% stocks and 30% bonds, the portfolio would then be rebalanced back to the 60/40 split through the sale of stocks and the purchase of bonds. This rebalancing is an active step in adhering to the investment policy statement's guidelines and maintaining the intended risk profile of the portfolio.