- Set limits for portfolio weights to drift from a strategic asset allocation.
- The goal is to provide flexibility to minimise dealing costs, run winners and control risk.
- Stage five of our Twelve Steps of Portfolio Management
With a benchmark strategic asset allocation (SAA) framework decided, the next step for investors is to create a set of rules for rebalancing asset weightings and staying within the portfolio risk budget.
We aim to keep downside risk to a level where we can be 99 per cent confident daily losses won’t exceed -3.11 per cent and maximise the Sharpe Ratio (rate of return above the risk-free rate per unit of volatility) of our portfolio. This is while minimising the amount of times we must rebalance to save on costs.