Tailored Rebalancing Overlays
Rebalancing overlays are tailored to each client portfolio’s Strategic Asset Allocation (SAA) or benchmark. It preserves the integrity of the SAA, neutralises portfolio drift, manages portfolio risk, and enhances the risk-adjusted return of the portfolio. It also provides strong fiduciary protection by avoiding unintended tactical tilts.
The rebalancing overlay involves daily monitoring of the amount of drift between the underlying fund’s assets and its associated SAA. When the drift exceeds agreed tolerances the asset class exposures are realigned to the SAA weights. The rebalancing overlay is implemented using exchange traded derivatives and forward foreign exchange contracts in a timely, efficient and cost effective manner.
The rebalancing overlay works well in a portfolio structured with specialist managers, by providing minimal disturbance to the underlying managers whilst also allowing the fund to take advantage of any portable alpha opportunities if desired. Fund cash flows can also be managed without the pressure of rebalancing time constraints.