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# Investment Advisor: It is well-known that investing in

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Director
Joined: 26 Oct 2016
Posts: 666
Location: United States
Schools: HBS '19
GMAT 1: 770 Q51 V44
GPA: 4
WE: Education (Education)

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13 Apr 2017, 23:20
Following points mentioned below Advisor assumes to be true :-
1) Investing in mutual funds reduces portfolio risk.
2) Past investment performance is often related to future investment prospects.
Conclusion :-
Advisor selects a group of mutual funds that meet the client’s objectives and then invest the client’s assets in the fund that has delivered the highest returns in this group over the past 2 years. So, client can earn high returns with low risk.
Reasoning :-
The strategy of the investment advisor is based on selecting the fund that has delivered the highest returns within the peer group that meets the client’s objectives. One of the major assumptions underlying this strategy is that the funds that have delivered the best returns will continue to do so in the future. If this assumption is inaccurate, the strategy of the investment advisor will be seriously weakened.
(A) CORRECT. This answer choice demonstrates a serious flaw in the logic of the investment advisor. If it is true that the best-performing fund managers have already used their strongest ideas and are unlikely to sustain this level of performance in the future, then the advisor’s winner-oriented strategy is unlikely to deliver high returns.
(B) Since the investment advisor selects the fund from the group that meets the client’s objectives, this statement does not weaken the advisor’s strategy.
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Anaira Mitch

Manager
Joined: 21 Jul 2017
Posts: 113
Location: India
GMAT 1: 650 Q47 V33
GPA: 4

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07 Aug 2017, 08:57

D) Strengthens.
C), E) Out of scope.
B) select a group of mutual funds that meet the client's objectives and then invest the client's assets in the fund that has delivered the highest returns in this group over the past 2 years.

The investment manager is not selecting a single fund for every investor.

A) Past performance will not be repeated in the future. Hence, the correct answer.
Manager
Joined: 18 Jan 2018
Posts: 60

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23 Apr 2018, 02:35
Investment adviser's approach is to select high returns generating mutual funds that have good past performance and invest his client's assets in those funds.

Choice A highlights that mutual funds that have generated highest returns in the past are unlikely to do so in the future. Hence this choice is correct.
Re: Investment Advisor: It is well-known that investing in   [#permalink] 23 Apr 2018, 02:35

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