What is one drawback of the relative strength study?

The choice that identifies a drawback of the relative strength study relates to the nature of how investments are managed. In a typical relative strength strategy, the portfolio is constructed by selecting assets that have performed well relative to others, often leading to a fully invested and long-only portfolio. This approach implies that there is no allocation to assets perceived as underperforming, which can limit flexibility in a volatile market environment. By being long-only, the strategy may miss opportunities to hedge against downturns or to take advantage of short-selling opportunities in declining markets. Thus, this characteristic of being fully invested and long-only can lead to increased risk, particularly during market corrections or periods of heightened volatility.

This understanding highlights the need to consider different strategies and the potential benefits of incorporating various investment approaches that allow for more flexibility in managing exposure to market movements.