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According to the Canadian Investment Funds Course, asset mix rebalancing is the process of restoring the portfolio to its original or target asset allocation by selling or buying assets. Asset mix rebalancing is necessary to maintain the desired level of risk and return, as well as to align the portfolio with the investor’s objectives and circumstances. Asset mix rebalancing can be done periodically, such as annually or quarterly, or based on a threshold, such as when an asset class deviates from its target weight by a certain percentage.

In this case, Jerry’s asset mix is deviating from the original target asset mix because the stock market has had strong performance. Equities are now over-weighted in Jerry’s account. The original target asset mix is still valid since Jerry’s situation has not changed. He is invested in several bond and equity mutual funds. Therefore, the best course of action is to advise him to sell a portion of assets invested in equity funds and reinvest the proceeds into bond funds. This will bring his portfolio back to its target asset mix and reduce his exposure to equity risk.

The other options are not advisable because:

Advising him to change his know your client (KYC) form to reflect more growth would imply that his risk tolerance and objectives have changed, which is not the case. Changing the KYC form would also require a new suitability assessment and documentation.

Advising him to do nothing since equities could outperform bonds in the next year would ignore the importance of asset mix rebalancing and expose him to more risk than he is comfortable with. Doing nothing would also mean that his portfolio is not aligned with his original plan and expectations.

Advising him to sell a portion of assets invested in bond funds and reinvest the proceeds into equity funds would further increase his equity weight and risk, which is contrary to his original target asset mix and risk tolerance.

Therefore, the correct answer is D. advise him to sell a portion of assets invested in equity funds and reinvest the proceeds into bond funds.

Comprehensive and Detailed Explanation From Exact Extract:

Current assets on a statement of financial position include items that are expected to be converted to cash or used within one year, such as cash, accounts receivable, and inventories. The feedback from the document states:

"Typical current asset accounts include cash, representing the total amount in all of the company’s deposit accounts; inventories, representing the finished and unfinished products which have not yet been sold; and accounts receivable."

Comprehensive and Detailed Explanation From Exact Extract:

A beta of 1.4 indicates that the Optima Equity Fund is 1.4 times more volatile than the market. If the market rises by 5%, the fund is expected to rise by 5% × 1.4 = 7%. The feedback from the document states:

"One way to measure market risk is by calculating a portfolio’s beta. Beta shows how much a portfolio fluctuates when the market as a whole fluctuates. A higher beta means that the portfolio is exposed to more risk. The market has a beta of 1.0. In this example: The Optima Equity Fund has a beta of 1.4, which means the Fund is expected to be 1.4 times more volatile than the market as a whole. If the S&P/TSX Composite Index is used to measure the performance of the Optima Fund, then if the Index rose by 10% you would expect to see the Optima Fund rise by 14% (1.4 × 10%)."

The purpose of holding money market instruments for non-money market mutual funds is to provide liquidity for the fund. If the portfolio manager has an immediate need for cash, such as to pay expenses or meet redemption requests, money market instruments are relatively easy to liquidate because they have short maturities and low credit risk. Money market instruments do not primarily generate investment income that provides investors with preferential tax treatment, as interest income from money market instruments is fully taxable at the investor’s marginal tax rate. Money market instruments are not purchased by non-money market funds to satisfy the regulatory requirement of fund diversification, as there is no such requirement for mutual funds. Money market instruments do not ensure that the fair market value of a mutual fund will not drop below a minimal market value, as money market instruments can also fluctuate in value depending on interest rate changes and supply and demand factors. References: Money Market Instruments