LLQP Segregated Funds & Annuities · Component 2.1 · 30% of the exam
A 'specialty' or sector fund:
- Concentrates in one sector, region or theme, with higher potential return and concentrated risk
- BIs low risk, since the manager specializes in the sector and knows it thoroughly
- CIs fully diversified within its sector, which makes it as safe as a broad equity fund over the long run
- DIs a bond fund that invests in the debt of a single industry
Correct answer: A) Concentrates in one sector, region or theme, with higher potential return and concentrated risk
Concentration increases specific risk. Specialty funds are satellite holdings for aggressive profiles, not core holdings.
Why the other options are wrong
- BSector funds are high risk because of their concentration.
- CConcentration is the opposite of diversification.
- DSpecialty funds are usually equity.
Exam tip
Sector funds: high, concentrated risk; satellite, not core.
Common mistake
Using a sector fund as a conservative client's main 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
Timed sets weighted like the exam, and review of every question you miss. Free to start.