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Read more about the article Implementing a Strategic Rebalancing Framework to Your Portfolio

Implementing a Strategic Rebalancing Framework to Your Portfolio

It is December, and this is a period when most investors usually end up overseeing their portfolio allocations to start fresh in the coming year, and preforming periodical rebalancing.

While most just rebalance mechanically back to the original asset weights, we will be looking at whether rebalancing can be carried out in a way that improves returns and minimizes drawdowns when compared to both buy-and-hold strategies, as well as periodical rebalancing.

Many investors – both retail investors investing their personal wealth, and asset managers with millions in AUM – usually employ calendar rebalancing of a portfolio. This could be the quarterly rebalancing of a mutual fund, or that the retail investor sits down annually for a few hours during the Christmas holidays ahead of the new year to rebalance the portfolio.

Such periodical rebalancing is built on the fundament of mean reversion. It essentially sells the winners of the past period, and buys the losers. Over time, this is from where a rebalancing premium is captured when your portfolio consists of several uncorrelated assets. All Seasons Portfolios are a typical such portfolio that benefits from the rebalancing premium.

However, Man Group has researched strategic rebalancing techniques that could mitigate drawdowns through more bespoke methods for rebalancing. Their discussed techniques cover both the periodical rebalancings, as well as mid-period rebalancing when assets’ weights in portfolios deviate by more than a predetermined amount (rebalancing spans).

The retail investor should therefore consider the implications of trend and momentum both for periodical rebalancing and ad hoc rebalancing when using rebalancing spans, and implement a strategic rebalancing approach to further improve risk-adjusted return by minimizing drawdowns and thus the overall portfolio volatility, and potentially capture additional percentage points of return from trend.

In this post, we will be looking at a few ways of how to implement strategic rebalancing for your portfolio. I will also especially highlight the ways I have taken strategic rebalancing to heart in my All Seasons Portfolio.

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Read more about the article There Impact of Interest Rate Risk When Investing

There Impact of Interest Rate Risk When Investing

2022 was a shaky year for capital market.

Interest rate risk is an important type of risk to be aware of as an investor, as it affects stocks and bonds indiscriminately. That is especially harmful for investors only investing in stocks or using a "balanced" stock-bond portfolio.

We will therefore be taking a closer look at what it is and whether there is anything we can do as investors to protect our wealth and portfolios against it.

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Read more about the article Insights – Convex Returns: The Key to a Diversified Portfolio

Insights – Convex Returns: The Key to a Diversified Portfolio

Diversification is the fundamental feature of portfolio management and asset allocation, but is there more to it than just measuring correlation and calling it a day?

In this article, we look more closely into the concept of convex return relationships between assets, ensuring that diversifiers perform and thus protect against the drawdowns of other assets in the portfolio.

Convex diversification profiles play an important role in the All Seasons Portfolio for making drawdowns shallower and creating opportunities for earning rebalancing premiums.

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Read more about the article Insights – Has gold lost its status as an inflation hedge?

Insights – Has gold lost its status as an inflation hedge?

In 2022, inflation made its presence clear and undeniable. While it can be argued whether we experienced an inflation "surprise", investors were reminded of the importance of inflation hedges in their portfolios as stocks and bonds suffered.

Gold is one such inflation hedge, but he narrative in financial media has bashed its capabilities of protecting against inflation in 2022, as the gold price ($) was barely flat for the year.

In today's article, we will be reviewing whether gold has lost its appeal as an inflation hedge, or if it rather needs to be viewed from a different angle.

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Read more about the article Insights – Optimal Time to Rebalance a Portfolio and Rebalancing Timing Luck

Insights – Optimal Time to Rebalance a Portfolio and Rebalancing Timing Luck

The theory behind investing in a multi-asset portfolio is pretty straight forward when simplifying it. You select a diverse set of uncorrelated assets, assign target weights and then you're done. Not that tricky.

It is mostly the managing part of the investment process that is more challenging. First, you have to work on your conviction to stick to the strategy and remembering why you chose the strategy in the first place. Secondly, you have to deal with rebalancing the portfolio, as uncorrelated assets are guaranteed to develop in different directions with some assets zigging when others are zagging.

The topic of rebalancing is one which I find is underserved in the literature and one that I get most questions about. Usually, it is the theory behind a portfolio that is the most exciting to write about and which is the key topic that sells and attracts more clients. The science of rebalancing, however, is just something that is covered briefly, at most.

While I have been writing about portfolio rebalancing in the past, I have recently found renewed inspiration for this topic. That inspiration turned into this post, where we are looking more closely at rebalancing luck, and if there is an optimal time in a month to rebalance a portfolio.

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Read more about the article Insights – The Case for Gold in a Diversified Portfolio

Insights – The Case for Gold in a Diversified Portfolio

Gold is a popular investment due to its ability to hedge against inflation, low correlation with the stock market, and its relationship with real interest rates. Using modern portfolio theory and the efficient frontier, investors can find the optimal allocation to gold in their portfolios that balances expected returns and risk. However, the optimal level of gold allocation will depend on an investor's specific investment objectives, risk tolerance, and financial situation. Therefore, adding gold to a well-diversified portfolio can improve its risk-return characteristics, particularly during periods of market stress.

In this article, we explore gold as an investment and inflation hedge, and briefly touch on how it fared in the inflationary year of 2022. We further look at the current case for gold in terms of real interest rates, the M2 money supply, and discuss how the gold price performs relative to also other currencies than just the US dollar.

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