GARP FRM Part 1 Practice Exam 2025 – Complete Prep Resource

The term that best describes a tailored investment strategy derived from an investment mandate is portfolio construction. Portfolio construction involves the process of selecting and organizing investments to achieve specific financial objectives while adhering to the guidelines outlined in an investment mandate. This can include considerations such as risk tolerance, return expectations, investment horizon, and specific asset classes or sectors that should be included or excluded.

In contrast, investment diversification refers to the practice of spreading investments across various financial instruments, sectors, or geographies to reduce risk, rather than the tailored approach derived from a specific investment mandate. Asset allocation relates to the strategic distribution of investments among different asset classes (like stocks, bonds, and cash) in line with an investor's risk profile and investment goals but does not directly address the specific tailored strategy formulated from an investment mandate. Performance analysis involves evaluating the returns of an investment or portfolio against benchmarks or objectives, which deals with measurement post-investment rather than the strategy formulation stage.

Thus, portfolio construction is the most accurate term as it specifically encapsulates the development of a customized investment strategy based on an investment mandate.