Staying on Track by Rebalancing
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01 August 2022
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It’s hard to believe but we’ve already more than halfway through 2022. As we prepare for the rest of the year, you may want to review your portfolio to ensure that it’s still on track to meeting your investment goals.

Think of it as a regular tune-up just like your car to ensure that everything is working as it should so that your portfolio still meets your requirements.

In investment lingo – this is also called rebalancing.
 
Here’s what you need to know about portfolio rebalancing and why it’s important.
What is Rebalancing?

Over the year, the weightage of each asset-class in your portfolio may have changed from your original target allocation. This is because of market movements that could impact the value of the underlying funds.

For example, if the equity funds in your portfolio outperformed last year, then you may find that the % percentage holding of your equity funds will be higher than at the start of the year.
 
Investors can tweak their portfolio through a process known as rebalancing - which restores the asset class weightage to the original level of your target asset allocation.
 
For example, let’s assume that an investor with a moderate risk-appetite has decided to opt for a balanced portfolio allocation with 50% in equities and 50% in bonds at the start of 2022.
 
During the year, the equity market appreciates at a much faster pace than bonds causing your portfolio to drift from its target asset allocation to now reach 70% equities and 30% bonds.
 
This could render your portfolio riskier than originally intended from a moderate level of risk, as equities are riskier compared to fixed income. Moreover, such an aggressive allocation would not be compatible with your risk-profile as a balanced investor, who desires a moderate level of risk on their investments.
 
Thus, rebalancing helps restore the portfolio back to its target allocation and ensure that your current asset allocation appropriately reflects your investment objectives and risk appetite.
How Often Should you Rebalance?

Investors are advised to review their portfolio quarterly and rebalance it on an annual basis. This is especially pertinent in a market that is characterised by strong performance from a particular asset class or region.

It is worth noting that you do not need to rebalance after each portfolio review, as rebalancing would only be needed if it deviates materially from your target asset allocation.
 
Citing the example above, you could for instance set a +10/-10 deviations from your target allocation of 50% equities and 50% bonds. If either the equity/bond portion reaches above 60% or below 40%, this would trigger portfolio action for you to rebalance.
 
Failure to do so, could result in a portfolio mismatch with that of your long-term objectives, as well as an under-diversified portfolio and higher portfolio risk.

Staying on Balance


It may be tempting for you to stick with the ‘winners’ in your portfolio and to avoid rebalancing at all. After all if a particular investment has done well, why shouldn’t it rally further?
 
However, rebalancing is a useful reminder for you to stick to your long-term objectives and in constructing a truly diversified portfolio that is able to weather multiple market cycles.
 
Irrespective of market performance, an investor should always take a longer-term view and avoid chasing market-highs or performance.

A common mistake made by investor during the rebalancing process is often the discipline. Whilst rebalancing is really a simple process of resetting your allocation, investors often get side-tracked by market noise or their emotions.
 
Rebalancing helps mitigate these impulsive shifts and ensure you remain disciplined to maintain your target allocation without relying on blind optimism or a single asset class for returns.
Disclaimer
This article has been prepared by Affin Hwang Asset Management Berhad (hereinafter referred to as “Affin Hwang AM”) specific for its use, a specific target audience, and for discussion purposes only. All information contained within this presentation belongs to Affin Hwang AM and may not be copied, distributed or otherwise disseminated in whole or in part without written consent of Affin Hwang AM.

The information contained in this presentation may include, but is not limited to opinions, analysis, forecasts, projections and expectations (collectively referred to as “Opinions”). Such information has been obtained from various sources including those in the public domain, are merely expressions of belief. Although this presentation has been prepared on the basis of information and/or Opinions that are believed to be correct at the time the presentation was prepared, Affin Hwang AM makes no expressed or implied warranty as to the accuracy and completeness of any such information and/or Opinions.

As with any forms of financial products, the financial product mentioned herein (if any) carries with it various risks. Although attempts have been made to disclose all possible risks involved, the financial product may still be subject to inherent risk that may arise beyond our reasonable contemplation. The financial product may be wholly unsuited for you, if you are adverse to the risk arising out of and/or in connection with the financial product.

Affin Hwang AM is not acting as an advisor or agent to any person to whom this presentation is directed. Such persons must make their own independent assessments of the contents of this presentation, should not treat such content as advice relating to legal, accounting, taxation or investment matters and should consult their own advisers.

Affin Hwang AM and its affiliates may act as a principal and agent in any transaction contemplated by this presentation, or any other transaction connected with any such transaction, and may as a result earn brokerage, commission or other income. Nothing in this presentation is intended to be, or should be construed as an offer to buy or sell, or invitation to subscribe for, any securities.

Neither Affin Hwang AM nor any of its directors, employees or representatives are to have any liability (including liability to any person by reason of negligence or negligent misstatement) from any statement, opinion, information or matter (expressed or implied) arising out of, contained in or derived from or any omission from this presentation, except liability under statute that cannot be excluded.
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TENG CHEE WAI

Managing Director
Teng Chee Wai is the founder of Affin Hwang Asset Management Berhad (Affin Hwang AM). Over the past decade, he has built the Company to be the fastest growing and only independent investment management house in Malaysia’s top three, with an excess of RM47 billion in assets under management as at 31 December 2018.​

​In his capacity as Managing Director / Executive Director, Teng manages the overall business and strategic direction as well as the management of the investment team. His hands-on approach sees him actively involved in investments, product development and marketing. Teng’s critical leadership and regular participation in reviewing and assessing strategies and performance has been pivotal in allowing the Company to successfully navigate the economically turbulent decade.

Teng’s investment management experience spans more than 20 years, and his key area of expertise is in managing absolute return mandates for insurance assets and investment-linked funds in both Singapore and Malaysia. Prior to his current appointments, he was the Assistant General Manager (Investment) of Overseas Assurance Corporation (OAC) and was responsible for the investment function of the Group Overseas Assurance Corporation Ltd.​

​Teng began his career in the financial industry as an Investment Manager with NTUC Income, Singapore. He is a Bachelor of Science graduate from the National University of Singapore and has a Post-Graduate Diploma in Actuarial Studies from City University in London.
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