Daily Archives: Apr 12, 2019 at 06:50 am EDT

Research Review | 12 April 2019 | Portfolio Management

Strategic Rebalancing
Nicolas Granger (Man AHL), et al.
April 3, 2019
A mechanical rebalancing strategy, such as a monthly or quarterly reallocation towards fixed portfolio weights, is an active strategy. Winning asset classes are sold and losers are bought. During crises, when markets are often trending, this can lead to substantially larger drawdowns than a buy-and-hold strategy. Our paper shows that the negative convexity induced by rebalancing can be substantially mitigated, taking the popular 60-40 stock-bond portfolio as our use case. One alternative is an allocation to a trend-following strategy. The positive convexity of this overlay tends to counter the impact on drawdowns of the mechanical rebalancing strategy. The second alternative we call strategic rebalancing, which uses smart rebalancing timing based on trend-following signals – without a direct allocation to a trend-following strategy. For example, if the trend-following model suggests that stock markets are in a negative trend, rebalancing is delayed.
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Macro Briefing: 12 April 2019

Fed has become too dovish, says Allianz’s chief economic advisor: CNBC
Herman Cain’s prospects for joining Fed lose key GOP support: Fox
Eurozone industrial output falls less than forecast in February: Reuters
China’s exports rebounded in March as imports fell more than expected: Reuters
Credit growth revives in China, suggesting firmer economic growth: Bloomberg
Investors consider the rising risk of an earnings recession: MW
US wholesale prices rose sharply in March, driven by higher gasoline prices: MW
US jobless claims fell below 200,000 last week for first time since 1969: CNBC