Education

About Rebalancing

Portfolio Rebalancing

Portfolio Rebalancing refers to the process of adjusting the composition of a portfolio to align it with the investor's target asset allocation and investment objectives. This is typically done by buying or selling assets as necessary to bring the portfolio back to its target allocation.

Attribute selection refers to the process of selecting specific securities or assets based on certain characteristics or attributes that align with the investor's investment objectives.

For example, an investor may have an objective to invest in companies that have a strong track record of paying dividends, or in bonds that have a high credit rating.

Portfolio Rebalancing relative to Attribute Selection, means the portfolio manager will conduct research and due diligence to identify securities or assets that align with the investor's investment objectives, and then make adjustments to the portfolio as necessary to bring it back to the target allocation.

For example, if an investor has a target allocation of 60% stocks and 40% bonds and the stock portion of the portfolio has grown to represent 70% of the portfolio, the portfolio manager would sell some stocks and use the proceeds to buy bonds to bring the portfolio back to the target allocation. In this case, the manager would also conduct research and due diligence to select the most suitable stocks and bonds based on the investor's attributes selection criteria.

It's important to note that portfolio rebalancing is a continuous process that should be done regularly, as market conditions and the investor's financial situation can change over time. The portfolio manager must continuously monitor and review the portfolio to ensure that it remains in alignment with the investor's investment objectives and attribute selection criteria, and make adjustments as necessary. By regularly rebalancing the portfolio, the portfolio manager can help the investor to achieve their financial goals while also managing risk by avoiding over-concentration in any one asset class.