You are currently viewing Portfolio Update – October and November 2021 – Strategic Rebalancing

Portfolio Update – October and November 2021 – Strategic Rebalancing

Contents of this month’s post include:

  • How you can improve portfolio performance by adopting a framework for strategic rebalancing
  • Monthly Update for October and November 2021 with a fresh set of charts
  • Book tip: Strategic Risk Management (brief review and link at the bottom of the post)


Finally, a sign of life from my end!

I hope you have had a wonderful and relaxing Christmas and that you were able to enjoy it safely with family.

I am excited to have finally followed through on this latest article about investing with risk parity portfolios and the All Seasons Portfolio strategy in particular.

Perhaps I have been a bit overly ambitious in what I could achieve besides my job, this blog, daily life, etc., when I signed up for a course in statistics earlier this fall. That has been running at 50% pace, but with everything else, it adds up.

I jumped on that course to further improve the foundations to build upon with more knowledge about risk parity, and to be better equipped to understand the more advanced principles of these portfolio management strategies. Most kinds of asset allocation are to a fairly great extent built on statistics, and as I have a passion for asset allocation strategies, I have been a keen learner.

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The course is scheduled to end by mid-January, after which I should have more time on my hands again to give this blog the love that it deserves. I hope you will keep sticking around for that, as I maintain this project as a mutual learning experience.

As I have been silent here for the past few months, I have both October and November to cover. I will go through my portfolios (on DEGIRO and eToro) for both months within short, but first, a text that was somewhat inspired by the season we are in. Not Christmas, but annual rebalancing (for those who do not rebalance more often).

Let’s look at a few ways you could improve your portfolio performance by tweaking the rebalancing strategy.

About Strategic Rebalancing

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.

My inspiration for this post came from a chapter in the book Strategic Risk Management written by principals in Man Group – an investment management firm founded in 1783 and headquartered in London with USD 140bn assets under management.

In addition to discussing strategic rebalancing, the authors portray several layers of risk management that are designed to improve overall performance.

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 chapter in the book that covers strategic rebalancing, is to a vast extent based on an article the authors published in June 2020 in the Journal of Portfolio Management. There it is discussed how a mechanical rebalancing strategy, for example when you rebalance a portfolio monthly, quarterly, or annually, this can lead to substantially larger drawdowns in times of crises when markets often are trending.

In such an environment, when trend is an important factor, by selling an asset that is trending upwards (for example bonds or gold during a crisis) and buying an asset in a negative trend, will exacerbate the portfolio drawdown, as you would be allocating more capital to asset classes that are likely to continue to decline, and taking away from assets that are likely to outperform.

To illustrate this phenomenon, the authors show the difference in return of a 60/40 portfolio through the 2008 GFC, with the only difference being the rebalancing strategy.

By rebalancing against a trend, the total portfolio drawdown was worsened by about 5 percentage points, when compared to a buy-and hold strategy (no rebalancing), even though the portfolio caught up a year later.

Even though this phenomenon becomes particularly distinctive during times of crises, the same effect is at play also in connection to periodical rebalancing. Despite trend being a weaker factor during non-crisis regimes, it will remain as one of the components driving price developments for an asset.

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.

Let us continue with looking at a few ways of implementing this in your portfolio. I will also especially highlight the ways I have taken strategic rebalancing to heart in my All Seasons Portfolio.

Why should you rebalance your portfolio?

Rebalancing is an important part of risk parity investing. Over time, asset returns are mean reverting, with the result that through rebalancing, you can achieve better risk-adjusted return by selling an asset at a high and buying at a low.

Additionally, by investing in several uncorrelated assets, you will also be gaining a rebalancing premium on top of each asset’s risk premium. I have several times linked to this paper by ReSolve Asset Management which clearly explains this concept. In short, you would be selling an asset at a relative high, and at the same time buying another at a relative low; and as both are likely to revert to their respective means, your returns will be better than a buy-and-hold strategy. Therefore, through methodical rebalancing and implementing rules for it as a key component of an investment strategy, you will see shallower drawdowns and more consistent positive return.

However, as mentioned, rebalancing can at times cause negative effects on your returns, especially when the markets are trending. This is why it is wise to consider a slightly different approach to rebalancing than the mechanical method of going back to the starting allocation every month, quarter or year.

Trend is an important part of returns

Trend and momentum are an interesting anomaly in markets, as they should not really be existing according to economic theory. But, thanks to investment psychology, they do have a measurable impact on asset returns in the short to intermediate term.

Even though trend can be found in several corners of the market and in individual assets during normal times (when no crisis is ongoing), trends become obvious during a crisis, when sell-offs foster further sell-offs, and in the subsequent recovery, risk-on fosters more risk-on behavior.

1. Adding a trend-following strategy

The first proposed way of capturing trend in a rebalancing strategy is through adding a trend strategy allocation on top of the existing portfolio.

How this is achieved in practice is that you would let your original portfolio take up 90% of the portfolio including the trend-following strategy, and the trend-following strategy takes up the remaining 10%. Hence, you would just scale back all holdings by 10%, so a stock holding would become 27% (from 30%) and a long-term government bonds holding would become 36% (10% down from 40%), etc.

For the trend-following strategy, this could be built in a variety of ways, with different look-back periods for determining trends (1m, 3m and 12m used by the article authors) and different ways of defining trend signals, or a combination of many such signals in a ranking system. Without going into any particular detail,

In all three cases analyzed by the authors (page 10 of the article), by applying a trend-following strategy, the Return/Volatility ratio for the 60/40 portfolios used for illustrative purposes increased from 0.92 to a range of 1.01-1.04 depending on lookback period for determining trends (with 1m and 12m being the best performers, both with Return/Volatility ratios at 1.04 and 1.02 respectively).

The aim is that you would have your core portfolio in the bottom (90% of the portfolio) and the last allocation is determined to what happens to be most in trend at any given time. Hence, automatically, you would be scaling up positions in a positive trend, and be allocating less to an asset whose prices are likely to deteriorate, which will mainly benefit returns through decreasing drawdowns.

While the strategy could be effective, as shown by the authors at Man Group, it will require a much more active approach to portfolio management than what a retail investor would be able to, or willing to, implement on any sustained horizon.

Perhaps alternative approaches to implement a trend-following element to investing would be more feasible. Let’s continue by looking at two ways that would make more sense to retail investors, and which I have started using for my portfolio.

2. Smart rebalancing timing based on trend signals

The second rebalancing strategy proposed by the authors is smart rebalancing timing. This means that you would have your portfolio as it is (not split between different strategies) and only proceed with the rebalancing, be it a periodical one or an ad hoc one, when the trend signals tells you to.

For example, let us say that you are about to rebalancing your portfolio toward the year-end. But, you also not that stocks are in a weak trend right now, and that if you proceed with the rebalancing and buying more stocks, you would be buying against the trend.

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Thus, instead of buying of an asset that is likely to continue to drop, you would wait with effectuating the rebalancing until a later time when the trend signal is neutralized. Perhaps you could wait until the asset is no longer trading so much below its MA200 and MA50 levels, so that you would decrease your probability of buying a losing asset. Intuitively, drawdowns would be reduced, and risk-adjusted portfolio returns should increase slightly.

This is an easier way to implement trend as a component in your portfolio rebalancing strategy, without the hassle of running two different strategies in parallel. As shown by the authors at Man Group, you would be more likely to make your drawdowns shallower by avoiding selling assets in the middle of a rising trend, and buying assets in the middle of a negative trend.

3. Partial rebalancing

The third option, which is the one I have adopted already (I will look into whether smart rebalancing timing would be fitting my preferences), is partial rebalancing. This is a rebalancing strategy that is the easiest of all to implement, as you do not have to spend additional time or tracking assets’ momentum in depth. Instead, this easy to use rebalancing strategy will make you automatically catch any trends without the need for more input.

What you would do with partial rebalancing is that when it is time for your planned rebalancing, regardless if it is a periodical one or an ad hoc rebalancing triggered by weight deviation intervals, is that you would not rebalance all the way back to original allocation.

Instead, you would be capturing the trend to a good enough extent by rebalancing only a part of the distance back to aimed allocation. For example, if your aimed stock allocation is 30% of your portfolio weight, and that the actual allocation has grown to 36% since the last rebalancing, you would not rebalance it all the way back to 30%.

Rather, to capture a bit more of a potential ongoing trend, you would rebalance the holding back by a predetermined factor. I use 50% as my rule of thumb. Hence, using this strategy, when rebalancing the stock allocation in this example, I would scale it from 36% to 33%, being halfway of the distance from the aimed allocation (0.5 * 6% = 3%).

This is a cheap way of capturing trends as you would remain with a dynamic risk allocation to an asset class that has been in a positive trend relative to other asset classes (see my post from December 2020 explaining DRA). This is logically the underlying case, as this asset class would not otherwise have been overweight in the portfolio.

There is a negative side to this strategy though, and that is blindness to whether a trend signal has gone away, which you would not be spotting. That is to say, if the asset has been overweight by 30% from target weight (an allocation of 39% using our previous stock example) but that this has now reduced to 20%, then staying overweight in an asset that could continue to decline, would not be the most efficient use of your capital.

While not perfect, this kind of partial rebalancing strategy is a decent compromise that gives you at least some upside from following on to trend. The study exhibited by the authors at Man Group, showed that while this strategy worked to some extent for reducing drawdowns, it was less potent than other rebalancing strategies used.

Note, however, that when it comes to ad hoc rebalancing, the perks of implementing partial rebalancing is much stronger than in the case of periodical rebalancing strategies. The reason is that when it becomes relevant to execute a rebalancing mid-period (between two periodical rebalancing dates), then by default, the asset has been trending, as it would otherwise not reach the end of a rebalancing span.

Hence in doing partial rebalancing mid-period, you would be taking home some profits from a relatively strong asset, while still leaving some money on the table to gain additional returns if the trend continues.

Optimal approach for retail investors

What I consider to be the optimal approach for retail investors, and what I intend to implement for myself, is a mix of partial rebalancing and elements from smart rebalancing timing. Which of these I will be leaning more toward, is split between what kind of rebalancing we are talking about: periodical or ad hoc.

For ad hoc rebalancing, I am already now using partial rebalancing as my go-to strategy to benefit from continuing trends, while reducing the risk associated with having a larger chunk of my capital allocated to an asset class than has been my plan. It is a simple rule to follow that if an asset class deviates from its weight by X%, I rebalance halfway to the aimed allocation.

For periodical rebalancing though, I will do a mix of partial rebalancing and smart rebalancing timing. The most important factor here will be to follow trend signals. As periodical rebalancing doesn’t occur too often, it would not be excessively cumbersome to review trend ahead of the rebalancing date.

The way I would do this, is that when a periodical rebalancing date approaches, I would see to what extent the assets to be rebalanced are trending. If they are in a trend aligned with of how I would rebalance (i.e. positive trend for an asset I need to scale back my allocation to), I would be proceeding with a partial rebalancing. If, however, there is no clear trend, or if the trend is in the opposite direction toward its aimed weight, I would be rebalancing all the way back to original weight.

This is what I would consider to be the most efficient use of retail investors’ time to achieve the benefits of adding a trend component to the rebalancing strategy. But, depending on what level of hands-on work you are willing to put in, you could make any adjustments from this, either by always doing partial rebalancing as the easiest approach, to adding more trend signal tracking and adding an additional layer of timing delays. The authors of the article also indirectly proposes a combination of strategies, i.e. that during months when there is no clear signal, the portfolio is rebalanced halfway to its aimed mix (see page 15).

Putting my money where my mouth is – what do I do?

What do I do in practice? It could be seen as one thing for me to promote something here on the blog, which is then not what I do with my own money. It is, of course, a matter of confidence, accountability and trust.

By mid-December, I have proceeded with my annual rebalancing. This time, as we are continuing in a very uncertain environment where we could go either way in economic growth (Omicron threat vs. reopening economies) and the effects of inflation, I have elected not to do partial rebalancing, but will start the new year fresh back with my original allocation. This applies to both my investment accounts at DEGIRO (UCITS ETF’s) and eToro.

During the year, I have been making some partial rebalancings on an ad hoc basis, but this has been mainly isolated to my eToro account where I have slight leverage (1.34x through a 3x levered ETF for long-term government bonds with TMF) and lower transaction costs.

Mostly, these have been related to movements in crypto assets (mainly Ethereum) and VIX, but also to take home profits in long-term bonds and commodities. But for the two latter asset classes, the rebalancing has not been to their original weights to have further exposure to positive momentum. Especially for commodities, this has been a good way of reducing risk by taking home some profits, while still having achieved slightly higher returns from the continuing positive trend.

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Additionally, I have now delayed the rebalancing into VIX, as it is in a territory with limited upside, and will execute the buy on this asset when it is back at its longer-term normal range between 14-17.

Concluding remarks

Mechanical rebalancing of a portfolio is a good way of taking advantage of mean reversion and capturing a rebalancing premium in a portfolio built with several uncorrelated assets. Especially for a portfolio built to withstand different market regimes determined by economic growth and inflation, rebalancing will help you to effortlessly buy low and sell high, which is the holy grail of investing.

But mechanical rebalancing also imposes challenges. By rebalancing on autopilot and without further consideration, you are likely to be rebalancing out of assets in a positive trend, and by into assets that are declining. This could, with some bad luck, worsen a drawdown, if you would be scaling back on an asset that would offset losses, and buy an asset that will continue to be losing you money. You are therefore at risk at giving up potential return.

By giving your rebalancing strategy a bit of extra love, and expanding on this part of your overall strategy, you could by implementing trend-following rules, reduce drawdowns, and hence slightly increase your risk-adjusted (and absolute) return.

Such strategies vary in form, and you could implement it in many different ways depending on how much time you are willing to invest in managing your portfolio. For most retail investors, the additional small gain might not be worth the time if you would be going for the most advanced trend-following strategies for rebalancing.

I also recommend that you read the discussed article, as it covers the topic in more depth than what I have briefly conveyed in this post. Check out the book as well (Strategic Risk Management), as it holds a larger set of ways to manage risk that should help you building a set of tools for improving your portfolio management skills.

You find the article here:, the summary here:, and the book: Strategic Risk Management.

For inspiration, I use a combination of partial rebalancing when holdings deviate outside a range from aimed allocation, and delaying rebalancing based on trend signals.

If you are looking for getting started with your own All Seasons Portfolio and need some inspiration, check out my post on How to get started with the All Seasons Portfolio strategy. While stocks have been a great investment the last decade, there are no guarantees that this trend will last, as their continued success depends on several factors. Instead, consider diversifying your portfolio to include other asset classes, and benefit from the rebalancing period over the long-term, as described in this article.

October and November 2021 Portfolio Update

Now that we have taken a good look at my eToro portfolio, let us once again turn our attention to my older, and still very active, All Seasons Portfolio that I have built with European UCITS ETFs.

September was a not too-good month (see my September portfolio update here), when my portfolio saw a decline of 1.70%. October, however, did not disappoint as I saw a return of 3.98%, and continued to rise 1.39% in November.

In the last 12 months, the return has been 13.49% at the time of writing by end of December with an annualized volatility of just 6.94%, giving me a Sharpe ratio of 1.91 (and a return/vol ratio of 1.94). I am happy with that!

While I have executed a rebalancing in December, as alluded to in the discussion further above, as at 30 November, my portfolio had the shape as set out here below. With the uncertainty ahead, and starting the year fresh, the imbalance between TIPS, gold and commodities on the one side and treasury bonds on the other side, has been rebalanced since.

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Looking at the portfolio performance over the last 3 months ending on 30 November, my All Seasons Portfolio has kept up very well with the stock market, but with less volatility. This is seen in the graph to the left. The numbers to the right show last-twelve-month figures. The lag against the S&P 500 is expected taking into account the rally by end of 2020, but I have kept up good performance through 2021 as well with low volatility.

Continuing below with the two 1m performance charts for October and November side by side. With this view, it is quite evident that end of November was a more volatile period in the markets overall with risk assets and short-vol assets (stocks and commodities) drew back on Omicron fears.

Adding also the 3-month chart per end of November 2021 with a break down of the assets.

Lastly, as usual, here is the table of my ETFs and the changes laid out in table form.

ETFNameAsset Class2021-10-292021-11-30Change
UIMBUBS LFS Bloomberg TIPS 10+ UCI ETF(USD)AdTIPS€662.63€694.454.80%
DTLEiShares $ Treasury Bd 20+yr UCITS ETF EUR Hgd DistLong-Term Government Bonds€831.60€843.921.48%
IGLEiShares Global Govt Bond UCITS ETF EUR Hedged DistLong-Term Government Bonds€633.39€637.260.61%
M9SAMarket Access Rogers Int Com Index UCITS ETFCommodities€527.16€514.74-2.36%
FLXGFranklin LibertyQ Global Equity SRI UCITS ETFStocks€753.12€769.842.22%
JPGLJPM Global Equity Multi-Factor UCITS ETF - USD accStocks€802.29€823.142.60%
VOOLLyxor S&P 500 VIX Futures Enhcd Roll UCITS ETF AVIX€94.25€100.346.46%
Currency:BTCUSDBitcoin XBTCrypto€259.35€256.25-1.19%
Added cash€0.00€0.00

Thank you yet again for following my blog about risk parity investing and the All Seasons Portfolio. If you haven’t done so already, make sure to subscribe to the newsletter via the form in the page footer, and to drop any comments you may have on the content with the comment section or via email to The greatest value I have received from upkeeping this blog is the fantastic conversations with great people, such as yourselves, about ideas on investing and strategies. Thanks for that!

Remember also to check out the Resources page which I will be filling up with useful tools and resources for managing an All Seasons Portfolio. If you have any suggestions for any particular spreadsheet or tool that you are after, let me know in the comments below and I will see what I can do to have it included.

If you wish to support me in alternative ways without donations, you can share the post through social media or with your friends who should invest more responsibly. Alternatively, occasionally click any ads or access Amazon via the links included in the book tip section below any time you are making any purchase from their platform (it does not necessarily have to be the book I am linking to).

We’ll catch up soon for the October update!
Nicholas Ahonen

Book tip: Modern Asset Allocation for Wealth Management by David M. Berns, PhD

Having just experienced a global pandemic that sent equity markets into a tailspin in March 2020, risk management is a more relevant topic than ever. It remains, however, an often poorly understood afterthought. Many portfolios are designed without any thought given to risk management before they are handed off to a dedicated—but separate—risk management team.

In Strategic Risk Management: Designing Portfolios and Managing Risk, Campbell R. Harvey, Sandy Rattray, and Otto Van Hemert deliver a reimagining of the risk management process. The book envisions a marriage between the investment and risk processes, an approach that has proven successful at the world’s largest publicly listed hedge fund, Man Group.

The authors provide readers with a new framework for portfolio design that includes defensive strategies, drawdown risk controls, volatility targeting, and actively timing rebalancing trades. You will learn about how the book’s new approach to risk management fared during the recent market drawdown at the height of the COVID-19 pandemic. You will also discover why the traditional risk weighting approach only works on certain classes of assets.

Perfect for people working in the asset management industry and financial policy makers, Strategic Risk Management: Designing Portfolios and Managing Risk will also earn a place in the libraries of economics and finance scholars, as well as casual readers who take an active approach to investing in their savings or pension assets.

The book shows you how to accurately evaluate the costs of defensive strategies and which ones offer the best and most cost-effective protection against market downturns. Finally, you will learn how to obtain a more balanced return stream by targeting volatility rather than a constant notional exposure and gain a deeper understanding of concepts like portfolio rebalancing.

A powerful new approach to risk management in volatile and uncertain markets

While the COVID-19 pandemic threw the importance of effective risk management into sharp relief, many investment firms hang on to a traditional and outdated model of risk management. Using siloed and independent portfolio management and risk monitoring teams, these firms miss out on the opportunities presented by integrated risk management.

Strategic Risk Management: Designing Portfolios and Managing Risk delivers a fresh approach to risk management in difficult market conditions. The accomplished author team advocates for the amalgamation of portfolio design and risk monitoring teams, incorporating risk management into every aspect of portfolio design.

The book provides a roadmap for the crucial aspects of portfolio design, including defensive strategies, drawdown risk controls, volatility targeting, and actively timing rebalancing trades. You will discover how these techniques helped the authors achieve remarkable results during the market drawdown in the midst of the COVID-19 pandemic and how they can help you protect your assets against unpredictable—but inevitable—future bear markets.

Ideal for professionals in the asset management industry, Strategic Risk Management: Designing Portfolios and Managing Risk is a valuable resource for financial policy makers, economics and finance scholars, and anyone with even a passing interest in taking an active role in investing for their future.


Strategic Risk Management shows how to fully embed risk management into the portfolio management process as an equal partner to alpha. This should clearly be best practice for all asset managers.”
—Jase Auby, Chief Investment Officer, the Teacher Retirement System of Texas

“This book shows the power of integrating risk and investment management, rather than applying risk management as an afterthought to satisfy set limits. I was pleased to shepherd some of the key ideas in this book through the publication process at The Journal of Portfolio Management.”
—Frank J. Fabozzi, Editor, The Journal of Portfolio Management

“Financial markets today are quite different from those of the last century. Understanding leverage, correlations, tails, and other risk parameters of a portfolio is at least as important as work on signals and alpha. In that sense, bringing risk management from ‘control’ to ‘front office’ should be a priority for asset managers. This book explains how to do it.”
—Marko Kolanovic, Chief Global Market Strategist, J.P. Morgan

Or check out other great books on the topic on the Book recommendation page.

Buy it today on Amazon (affiliate link; support the blog at no extra cost for you by accessing the book through these links):

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