CORE Strategies

CORE Capital Markets strategies try to achieve an attractive balance between a client’s risk tolerance and the desired rate of return, while minimizing the client’s investment expense. Relative to conventional broad-based equity market benchmarks, our strategies tilt toward small company stocks, value stocks and stocks with higher profitability. Research has found these asset classes or dimensions of risk to have a positive risk/reward relationship over time. The fixed income portion of the strategies reflects an emphasis on short term, high quality investments.

Rebalancing

The most common approach to rebalancing is to execute trades on a methodical calendar basis. On the first day of every quarter or the last day of every year, one would trade their account to rebalance back to their target portfolio allocations. It is not really important how often you rebalance, just that you are consistent.

However, there is a much better way to rebalance. It is more time consuming and involves science and experience, which is why most investors reject it in favor of the easier calendar method, but it offers superior results over time and is why it is favored by the more sophisticated advisor. We call it rebalancing by tolerances. Another way to consider it is that we rebalance based on price rather than time.

In implementing this method, one sets certain tolerances around each asset the portfolio holds and will let the weight of that holding fluctuate inside that tolerance. When the holding percentage breaches the tolerance, the portfolio may enter an inspection mode to determine when a trade should occur.

For example, one might allocate 10% of a portfolio to US Large Cap Value stocks. A 10% tolerance may then be placed around that position. If the weight to that position either increases to 11% or decreases to 9%, the portfolio would be considered for rebalancing.

As data has proven, it is impossible to predict when an asset class might trigger a move to rebalance, and so it requires constant vigilance of the model in order to take advantage of these opportunities.

A benefit of the rebalancing by tolerances strategy is that it can be far more effective than calendar-based strategies. History shows that although markets tend to move slowly, there are dramatic, short-lived moves in either direction that can offer investors an opportunity if they are nimble and have the discipline. If your portfolio manager is diligent to this form of rebalancing, you will be in a better position to take advantage of these opportunities as they arise.

Saying you are going to buy low and sell high is easy. Doing it takes skill and diligence, and rebalancing with tolerances can help.