Portfolio Rebalancing

GT never carries out these recommendations itself. No transaction is booked and no order is placed; you decide whether and when to act.

Step by Step

1. Create a portfolio based strategy under Rule-based Trading, either by hand, with Create strategy from portfolio from your current holdings or with Create strategy from watchlist, see Rule based trading.
2. Add asset classes and securities and set their Weighting. Check the column Sum of weightings: the asset classes and, separately, the securities of each asset class must add up to 100%; Normalize all percentages establishes this.
3. On the portfolio based strategy choose Create Strategy definition, select Portfolio rebalance under Strategy name and enter its parameters.
4. Make sure the portfolio based strategy is active.
5. Open the report Asset Classes with Cash and select your strategy under Compare with strategy to see targets, deviations and proposed trades.
6. When a checkpoint is reached, read the messages in your inbox and book the trades yourself as ordinary transactions.

Where the Target Weightings Live

The target weightings are not a setting of the strategy but the Weighting column in the tree of the rule-based strategy. Each level divides up the amount of the level above it, and the weightings of siblings must add up to 100%. The menu entries for normalising the weightings establish this automatically when needed.

At the very top sits the Maximum investment: the share of your net equity the strategy may invest at all. Everything below divides exactly that amount, and not the total assets a second time.

An example with net equity of 100,000:

The report always shows the right-hand column, the share of total assets. Only that makes a group and a single security comparable with each other.

graph TD
    T["Portfolio based strategy<br/>Maximum investment 48.2% = 48,200"] --> A["Asset class group Equities<br/>50% = 24,100 = 24.1% of assets"]
    T --> B["Asset class group Bonds<br/>50% = 24,100 = 24.1% of assets"]
    A --> A1["World ETF<br/>60% = 14,460 = 14.46% of assets"]
    A --> A2["US ETF<br/>40% = 9,640 = 9.64% of assets"]

Parameters of the Strategy

Rebalancing is entered exclusively at the top level, that is on the portfolio based strategy itself. There is no second rebalancing on an asset class group or on a security, because the weighting of the tree already states the target there, and two targets for the same position would contradict each other.

The last two parameters can be overridden for an individual asset class in the dialog Strategy asset class, see Rule based trading. If the fields stay empty there, the setting of the portfolio rebalance applies.

When a Recommendation Arises

The parameters answer different questions. The number of redeployments per year sets how often the allocation is compared at all: a checkpoint recurs every 365 days divided by that number, rounded to whole days, so four redeployments per year give a checkpoint every 91 days. The class deviation decides at such a checkpoint which asset classes are adjusted: only those whose amount deviates from the target by more than the tolerance. The adjustment of such an asset class then covers its whole deviation.

The security band and the trade limit then determine through which securities this adjustment is made. GT ranks the securities of the asset class: if the asset class has to grow, the most underweight securities come first, if it has to shrink, the most overweight ones; on a tie the higher trading volume decides. In turn, each security takes up as much of the adjustment as its band allows, until the adjustment is fully placed or the trade limit is reached. An asset class is thus brought back with few trades instead of setting every security exactly to its target. If a remainder is left because the trade limit is reached or the bands do not suffice, the report shows Maximum number of traded securities reached or Remaining adjustment cannot be placed within eligible security bands. Securities not used carry the reason Not selected for this class adjustment.

A recommendation therefore arises only when a checkpoint is reached and at least one asset class lies outside its tolerance. A drift between two checkpoints is visible in the report but triggers no message. A checkpoint at which every asset class is within its tolerance passes without a message; the next interval counts from it all the same. The very first evaluation of a portfolio based strategy is always a checkpoint.

graph TD
    A["Daily evaluation"] --> B{"Checkpoint reached?"}
    B -->|No| C["Report updated,<br/>a drift triggers no message"]
    B -->|Yes| D{"Asset class outside<br/>its tolerance?"}
    D -->|No| E["No message,<br/>next interval starts"]
    D -->|Yes| G["Select securities within their band<br/>and the trade limit"]
    G --> F["Message per selected security,<br/>next interval starts"]

If a recommendation arises, you receive a message in your inbox for each selected security, provided the delivery of alerts is switched on. The messages arise in the order of the deviation, beginning with the positions furthest above their target, so that you can reduce positions before you build up others. The comparison itself can be viewed at any time in the Asset Classes with Cash report, even when nothing is due.

Evaluation and Activation

GT evaluates the portfolio rebalance in the background once per day, against the closing prices of the last completed day. It is evaluated as long as the portfolio based strategy is active, see Rule based trading; the portfolio rebalance itself is active once created. If the weightings of a level do not add up to 100%, the evaluation of that portfolio based strategy is skipped without a message; the report then names the reason.

To evaluate at once, for example after changing weightings, open Alert diagnostics on the client’s tab Alert and choose Evaluate now. The plan is then recalculated even if it was already evaluated that day. A checkpoint is not brought forward by this.

The Comparison Uses Gross Exposure

The actual value of a position is its gross exposure, that is the amount with which it participates in the market, without offsetting long against short positions. For an ordinary long position this equals the position value. For a short position and for margin products it is more than the amount attributed to your assets: a short sale creates no additional investment capital, even though it brings money into the account.

The recommended action is always the trade and not the direction of the exposure. A short position that has grown too large is therefore reduced with Buy and not with Sell.

The recommended number of units is the amount divided by the price of one unit and is not rounded. Round it to a tradable quantity yourself.

Tactical Groups Are Not Filled Up

If an asset class group or one of its securities carries a trading strategy of its own, its weighting counts only as an upper limit. Rebalancing reduces such a position when it has grown too large, but never opens or increases it: when to enter is decided by the strategy sitting there. The unused budget of such groups is reported separately, so it is apparent why the report is not filled up to the Maximum investment.

When the Investment Ceiling Is Exceeded

If gross exposure rises above the Maximum investment, for instance because prices have risen, the report states Investment ceiling exceeded. In this state only recommendations that reduce the exposure are issued; all others appear as Blocked with the corresponding reason. The same applies when net equity is not positive, because no target amount can be calculated then.

A portfolio whose gross exposure is larger than its net equity is still evaluated and displayed. It is merely not built up any further.