Saturday, April 14, 2012


Rebalancing refers to the process by which a portfolio is brought back to its original asset allocation following a period of varying performance of assets which results in a deviation of weights from the original policy mix. The purpose of portfolio rebalancing is to restore the portfolio to its original mix; which is intended to maintain its original expected risk and return profile. If rebalancing is not done then the portfolio will take on different characteristics from when it was first put in place. Rebalancing strategies can be based on time e.g. every month/quarter/year, or threshold e.g. when portfolio weights deviate by more than 1%/5%/10% from the policy weight; or a combination of time and threshold. Rebalancing can add to returns, but it is typically thought of as a risk management strategy. Rebalancing will often involve selling the highest performing assets and investing into the lowest performing assets; and thus can be characterized as a contrarian strategy.

Similar Fund Terms: Reweighting, Tactical Asset Allocation, Asset Allocation

If you have any further questions or would like to add to this fund management term, then please submit your thoughts below. 

Fund Management Terminology and Concepts Explained:

1 comment:

  1. Hi,

    Great site! I'm trying to find an email address to contact you on to ask if you would please consider adding a link to my website. I'd really appreciate if you could email me back.

    Thanks and have a great day!