Why are constant-proportion strategies named as such?

Constant-proportion strategies are named as such because they maintain stock holdings at a constant proportion relative to a benchmark. This approach aims to systematically adjust the asset allocation in a way that keeps the investment in line with a predefined target proportion of the total portfolio value.

By continuously rebalancing to adhere to this constant proportion, investors can manage risk and exposure effectively, responding dynamically to changes in market conditions while still adhering to their original investment strategy. This method contrasts sharply with other investment strategies that may allow for more flexibility in asset allocation or do not adhere strictly to predefined ratios.

The other options don't accurately capture the essence of constant-proportion strategies. For example, while minimizing transaction costs might be a consideration in portfolio management, it is not the defining characteristic of this strategy. Similarly, strategies that allow for adjustments based on market trends or focus on short-term performance do not embody the principle of maintaining a specific proportion over time, which is fundamental to constant-proportion strategies.