Which of the following describes the position of asset classes and managers?

The correct choice captures an important aspect of portfolio management. The tax characteristics of investment entities can significantly influence the decision-making process regarding asset classes and the selection of managers. Each asset class comes with its own set of tax implications, which can affect the after-tax returns for investors. For instance, certain equities might be eligible for preferential tax rates on long-term capital gains, while fixed-income securities may be taxed as ordinary income.

Understanding these tax traits helps managers optimize the portfolio by taking into account not just the gross return potential but also the net return after taxes, which is crucial for overall performance. This consideration can guide informed decisions on asset allocation, strategy selection, and even manager employment.

While other options discuss important concepts in finance, they do not directly address the specific roles that tax characteristics play in defining the position of asset classes and managers. Strategies based solely on cash flow or performance based on historical data are relevant for other aspects of investment but do not encompass the broader implications of tax considerations. Similarly, market volatility is a factor affecting performance but does not refer to the inherent attributes of asset classes or managers in the same comprehensive manner as tax characteristics.