Markets · 6 pages · 12 min

Why rebalancing sells what rose

Rebalancing trims a holding that grew past its target weight and adds to what lagged.

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From the opening

Rebalancing sells what rose because a rise makes that asset a larger share of the portfolio than the target mix allows. To restore the weights, the portfolio trims the winner and adds to whatever fell behind, which is a return to the recipe rather than a verdict that the winner is finished. The opening covers winners outgrow their target, trimming restores the weights, and laggards get refilled.

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Inside

Winners outgrow their target
Trimming restores the weights
Laggards get refilled
No target means no rebalance
Where the idea stops applying
A distinction worth keeping

Sources

Constant-mix rebalancing
Portfolio target weights

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Why rebalancing sells what rose

From the opening

Inside

Sources

Also on the desk