Rebalancing Asset Allocation

Investors typically expend considerable resources to determine their strategic asset allocation. Unless there is a change in investment objectives, or a fundamental shift in financial markets, it is important that the agreed strategy is maintained.


Trustees of charities apply considerable resources to determine the most appropriate mix of investments for their portfolio. The process usually involves a review of the Trust’s investment objectives, the desired grants programme, the types of assets to invest in and the tolerance for risk. Modelling and analysis are normally used to assist the Trustees to choose a portfolio that appropriately balances expected return and level of risk. When the long-term investment strategy has been decided, it is commonly referred to as the strategic asset allocation.


Regular, disciplined rebalancing of the portfolio to maintain the agreed strategy is a critical component of good investment management. Because the returns of the various investments differ, the portfolio may drift away from the strategic asset allocation as assets that gain the most value become a larger proportion of the total portfolio. For example, if shares rise in value quickly and command a larger part of the portfolio, the portfolio risk may become excessive. An appropriate response is to rebalance the portfolio, selling some assets and buying others, to bring it back to the strategic asset allocation.


The frequency of rebalancing the portfolio should be determined by market returns, rather than occurring at a fixed time interval. This is a more efficient approach as the portfolio may remain close to the strategic allocation for long periods of time.


How far Trustees should allow the portfolio weights to deviate from the strategy before rebalancing is a matter of judgement. However the “tolerance ranges” should reflect the trade-off between the transaction costs involved in rebalancing and the higher risk (by not transacting) of not achieving the Trust’s investment objectives.


Want to know more?

Trust Management can provide advice to charities about setting their strategic asset allocation and implementing a rebalancing policy.


If you have any questions, or would like to know more about rebalancing your portfolio, please do not hesitate to contact John Williams on (09) 550 4046.


Grant Hope

Chief Executive Officer

09 550 4044









Shane Coward

General Manager

09 550 4045








John Williams

Investment Manager

09 550 4046