The Efficient Market Hypothesis (EMH), as described in the Investment Funds in Canada course, states that security prices reflect all available information at any given time. As a result, it is not possible to consistently identify undervalued or overvalued securities through analysis or market timing. Because prices already incorporate known information, attempting to outperform the market through research or timing strategies is unlikely to succeed over the long term.
For investors who believe markets are efficient, the CIFC curriculum explains that the most appropriate strategy is to maintain broad market exposure through diversified, index-driven investments. Index funds aim to replicate the performance of a specific market index rather than attempting to outperform it. This approach aligns with the belief that market returns are the best achievable returns after costs.
Option A contradicts market efficiency because fundamental research assumes mispricing exists. Option C is inappropriate because market efficiency does not imply avoiding risk assets altogether. Option D reflects active asset allocation and economic forecasting, which again assumes inefficiencies.
The course emphasizes that index investing offers diversification, lower costs, and reduced portfolio turnover, all of which improve long-term investor outcomes when markets are efficient. Therefore, Option B is the correct and fully CIFC-verified answer.
