Sun, Dec 15, 2019
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Alternative Market Briefing

Investors should rethink automatic portfolio rebalancing, study says

Monday, April 01, 2019

Bailey McCann, Opalesque New York:

Can automatic rebalancing end up doing investor portfolios more harm than good? A new study from Man Group suggests that automatic rebalancing can mean that investors sell out of profitable investments at exactly the wrong time.

"Rebalancing is an active strategy that can actually end up making the impact of drawdowns on a portfolio worse," explains Otto Van Hemert, Head of Macro Research at Man AHL and one of the authors of the paper in an interview. The paper shows that investors often aren't aware of the impact of rebalancing in a traditional 60/40 portfolio, but in practice, it's an active strategy that often means selling winners and buying losers. As a result, automatically rebalanced portfolios tend to underperform portfolios that use a buy and hold strategy, or those that are more consciously actively managed.

"Investors think of rebalancing as passive but it's an investment decision. The alternative, which is not rebalancing, is not ideal either, obviously," he says, adding that the problem with buy and hold is that the asset mix tends to drift over time which could limit diversification. Ultimately, it's important for investors to understand that any strategy is made up of active investment decisions and how you make those decisions can have an impact on portfolio performance. The figure below shows how these approaches play out over time.

......................

To view our full article Click here

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. 50 South Capital & Preqin highlight emerging manager outperformance in a new report[more]

    Bailey McCann, Opalesque New York for New Managers: New data from Preqin and 50 South Capital, the investment arm of Northern Trust, shows that emerging managers are outperforming established managers by almost 4% a

  2. An academic wrecking ball aims at hedge funds[more]

    From Bloomberg: Quant investing, and indeed much of the hedge fund industry, is built on the power and freedom that come with the ability to sell short. When you short a security (borrow and then sell it, meaning you make money if the price falls and you then re-buy it), you can profit when markets

  3. PE/VC: Private equity buys $101bn of European businesses, 30 under 30 venture capital 2020: Meet the young investors backing tech's next big thing[more]

    Private equity buys $101bn of European businesses From Bloomberg: European equities' cheap valuations have turned the region into a honeypot for private-equity and arbitrage funds looking to reap double-digit returns. With the buyout firms enjoying a massive amount of dry powder, especial

  4. PE/VC: The truth about private equity fund size, US VC investment in female founders hits all-time high[more]

    The truth about private equity fund size From Institutional Investor: As the end of the year approaches, institutional investors in private markets are wrapping up work on the last few funds we need to invest in to hit our targeted annual commitment levels. You see, private equity

  5. Crypto: Almost 70 crypto hedge funds have closed this year as institutional investors shy away, Central bank talk of launching cryptocurrencies is all bluff, Thailand and Hong Kong in crypto collaboration with cross border token project, Crypto loans see solid growth, platforms attract community interest, A Bitcoiner in the Senate? Is Bakkt CEO in US govt. good or bad for crypto?, Bank of France to test digital currency in 2020[more]

    Almost 70 crypto hedge funds have closed this year as institutional investors shy away From The Block Crypto: Nearly 70 crypto-focused hedge funds that largely cater to institutional investors, such as pension funds and family offices, have closed this year. The number of new fund