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Portfolio Rebalance is the process of changing the weights of assets like stocks or bonds in a portfolio by trading. Active portfolios, indexes and benchmarks are all rebalanced. Some common benchmarks are rebalanced according to a set quarterly or annual schedule. Active portfolio managers may rebalance their portfolios as frequently as quarterly, monthly, weekly, daily or even hourly, depending on the desired portfolio turnover.
Synonyms: trade, re-weight, re-allocate
For context, as with most finance and investment activities, the timing for rebalancing a portfolio is highly dependent on the view from the portfolio managers who set up the investment process. Each active manager hopes to have a source of alpha and portfolio turnover is a key component to generating that alpha.
The source of information used typically dictates how frequently and how aggressively to turn over a portfolio. Since public company financial statement arrive quarterly, a firm who is highly dependent on interpreting that data would tend to rebalance after quarterly reports are made public. For more technical-minded traders, the portfolio rebalance frequency may be much more market-dependent.
Portfolio turnover statistics are commonly available on public mutual funds, but less so with private investments, so it's a good data point to inquire about and measure.
Guy: A survey showed a change in mutual fund
portfolio rebalance frequency after the financial crisis.
Eve: Yeah, I remember. That's when risk and compliance officers became office rock stars.
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True. Depending on the new percent weight of cash and portfolio manager discretion.
Still unclear on Portfolio Rebalance? Check out the free tutorial Series Quant 101 for a deep dive in Excel.
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