Utilizing Factors in the rebalancing process improves market timing (among other benefits) due to their inherent link to macroeconomic risks associated with different stages of the business cycle
Since the long-term strategies are defined by our portfolio allocation services, tactical change to that allocation are provided by our portfolio rebalancing services. This portfolio rebalancing enables your portfolio to take advantage of new information by updating expected returns and expected risk measures subject to trading cost constraints, among others. Our factor approach improves the market timing performance since it offers a direct link with macroeconomic risks that exists during different stages of the business cycle. Another benefit of our rebalancing service is automation of trades using Interactive Brokers and our optimal timing tool which determines the optimal moment to rebalance your portfolio.
Forecasting returns and risk metrics such as volatility, correlations and extreme events are key to justify any change in your portfolio allocation. Our forecasting approach is rooted in academic consistency, using models such as a multivariate GARCH to forecasting covariances, vector error correction models (VECM) among others.
The expected gains from any change in a portfolio allocation must be aligned by different type of constraints that you can impose on it. Our portfolio rebalancing service is very flexible to incorporate different sorts of restrictions, such as risk budgeting which can be defined in terms of tracking error, volatility or conditional VaR. Other types of constraints is transaction costs budgeting which depends on turnover, bid-ask spread and trading fees. Withholding tax and more general tax efficiency can be included as an important condition in our portfolio rebalancing as well.
One of the main benefits of using a factor-based approach is the very different sensibilities of each factor to the business cycle. Factors like value and size are very procyclical but minimum volatility and quality tend to overperform in the negative phases of the business cycle. The behavior of momentum depends on the duration of the cycle, so it can be procyclical or defensive. By using these properties of factors – plus our capacity of estimating the factors that underlying both passive and active funds- we can improve the market timing of your strategies.
Rebalancing your portfolio should not necessarily be done in fixed periods. Our optimal timing tool adjusts your portfolio at any moment as long as the benefits expected of those changes overcomes the resulting trading cost.
Additionally, another benefit of our portfolio rebalancing is that your trades can be fully automated. So, we can offer and immediately implement different predefined rebalancing approaches such as buy & hold, mean reversion and momentum strategies using Interactive Brokers.
C U A N T S E R V
Tools & Models
Multi-Scenario Portfolio Optimization: Personalized objectives and constrains. Multiple time frames. Factor-driven possible.
Risk Budget: Budget risk taking in terms of tracking error, volatility or conditional VaR.
Instrument & Volatility Modeling: Model based on historical returns or stochastic processes. Volatility based on exponential, GARCH or historical.
Cost, Liquidity and Tax Analyzer: Find the best balance considering transaction costs, bid-ask spread, and withholding taxes among others.
Predefined Rebalancing Approaches: Out-of-the-box rebalancing regimes including calendar vs threshold based.
Liquidity: Model and penalize illiquidity. Reduce turnover on specific asset classes.
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*Free consultation call available to sophisticated investors only. Portfolio must be in excess of 20M USD.