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Maximizing the Rebalance Benefit Through Synthetic Implementation

January 8, 2024

The potential benefits of portfolio rebalancing have been well established by previous research. While much has been written on identifying an “optimal” rebalancing strategy, there has been less focus on which financial instruments are best suited to implement a rebalance strategy. Many institutional investors have rebalanced portfolio exposures by moving physical assets. However, synthetic exposures may provide for increased implementation efficiency. 

Synthetic rebalance implementation involves using futures, swaps, and other derivatives to align total portfolio exposures with target levels. This paper compares the relative strengths of physical versus synthetic rebalance implementations and their effect on total portfolio performance.

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Richard Fong, CFA

Managing Director, Investment Strategy

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