Publications

- June 1, 2009: Vol. 3, Number 6

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To Re or Not to Re

by Chris Ford

Following the very negative returns from almost all risky assets in 2008, many pension funds that adopted a fixed weight strategic asset allocation policy will now find themselves substantially underweight to riskier assets compared to more secure assets.

Our general view at this time is not to rebalance andto review the suitability of the existing strategic asset allocation policy. In this article, we cover the key reasons behind this advice and add some commentary on circumstances where it may be less relevant.

THE ART OF REBALANCING

Rebalancing, at its heart, is a process for keeping asset exposure close to an agreed target benchmark, and is beneficial because it limits the risk of returns diverging substantially from the benchmark. This is a real risk for those who are open to criticism from third parties who do not fully understand the investment policy being adopted.

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