LLQP Segregated Funds & Annuities · Component 2.1 · 30% of the exam
A fund is marketed as a 'low volatility' equity segregated fund. The most accurate thing the agent can tell the client is that:
- Athe manager has promised in writing that the fund will not fall in any calendar year
- Bthe fund is equivalent to a money market fund and may be used for a one-year horizon
- the fund aims to hold steadier shares, but it remains an equity fund that can lose money
- Dthe fund's low volatility label means the insurer has set its risk classification to low
Correct answer: C) the fund aims to hold steadier shares, but it remains an equity fund that can lose money
A low volatility mandate tilts the portfolio toward shares that have historically moved less, which may soften declines. It does not remove equity risk, and the fund's risk classification will still place it well above a money market fund.
Why the other options are wrong
- ANo fund manager can promise a positive result in any particular calendar year.
- BAn equity fund of any description is unsuitable for money needed within one year.
- DThe label describes the mandate; the risk classification is assigned from actual volatility.
Exam tip
Low volatility is a relative claim within equities, never a promise of stability.
Common mistake
Reading a low volatility label as a substitute for a fixed income or cash holding.
What this tests
CISRO competency component 2.1 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 2
- A segregated fund's 'guaranteed amount' after a partial withdrawal under proportional reduction is:
- A distinctive estate advantage of a segregated fund over a non-registered mutual fund held jointly with a child is:
- Segregated fund guarantees are most valuable relative to their cost when:
- A segregated fund's annual statement reports:
- Compared with a segregated fund, an exchange-traded fund (ETF) generally offers:
- A segregated fund's 'automatic death benefit reset' feature:
Practice the whole Segregated Funds & Annuities module
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