Which term describes the tendency of a mutual fund manager to move away from the original stated investment objectives by investing in classes of securities different from those named in the fund’s prospectus?
The correct answer is C. Style drift . The Investment Funds in Canada curriculum defines style drift as the situation where a fund manager gradually departs from the fund’s stated investment style or objectives as outlined in the prospectus. This can involve changes in asset class exposure, market capitalization focus, geographic allocation, or investment strategy.
Style drift is problematic because investors select mutual funds based on disclosed objectives and risk characteristics. When a manager deviates from those parameters, the fund may no longer align with the investor’s suitability profile. The CIFC text emphasizes that maintaining consistency with the prospectus is a regulatory requirement under NI 81-102 .
Momentum investing, sector rotation, and market timing are all legitimate investment strategies when disclosed in advance. Style drift, however, occurs without proper disclosure and can mislead investors.
Because the question specifically refers to deviation from the prospectus, Option C is the correct and fully CIFC-verified answer.
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