Whitepaper

Maximizing the Rebalance Benefit Through Synthetic Implementation

September 7, 2022

The benefits of portfolio rebalancing have been well established by previous research. Many investors have embraced rebalancing as a prudent strategy and are now seeking to maximize the rebalance benefit through efficient implementation.


While much has been written on the nonexistence of a so-called best band, few researchers have considered which financial instruments are best suited to implement a rebalance strategy. Traditionally investors have rebalanced portfolio exposures by moving physical assets. More recently they’ve begun incorporating synthetic rebalancing into the management of portfolio exposures. Synthetic rebalance implementation involves using futures (most common), swaps, and other derivatives to move total risk portfolio exposures back to 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

Director, Investment Strategy

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