The Benefits of Dynamically Rebalancing Portfolios During Times of Market Stress


Download the PDF version of this Educational Series.


Our Strategic Model portfolios, and the strategic portion of our All-Weather Model portfolios, are built around Asset Class risk and return forecasts for the coming decade. Inherent in the Strategic investment approach is maintaining constant exposure to a broadly diversified portfolio, to be the path towards a successful investing outcome. This contrasts with our Tactical models, which at times make considerable changes to the portfolios, even going all cash for highly defensive moments.

While long-term, strategic investing is generally a hands-off, buy-and-hold exercise in discipline, there are ongoing maintenance tasks needed to keep the portfolio on track. Annually, we re-evaluate our forecasts, and adjust the portfolio asset allocation as needed. At least semi-annually we again review these projections and may choose to make additional changes, typically minor, to capture short-term investment opportunities. Even if there are no alterations to the asset allocation of the portfolios, we implement a rebalancing of the portfolios at least semi-annually, bringing all investments back to their target weightings.

In addition to this regular, calendar-driven rebalancing, our models have built-in investment holding weighting tolerance bands. Investments that significantly drift away from their target weightings exceeding a pre-defined tolerance band are automatically flagged for rebalancing, which can occur at any time. We refer to this as dynamic rebalancing, and not all investment advisors deliver this added, important service.

In rare occasions, we may also elect to implement a discretionary portfolio rebalancing. After the severe market dislocation caused by the COVID-19 virus, we elected to “reset” the Strategic and All-Weather (AW) models. The rebalancing was executed on April 3rd, close to the recent market lows. Given the steep selloff in equities and some of the alternative positions such as Energy Master Limited Partnerships and Real Estate Investment Trusts, it made sense to bring these weights back up to their target weightings to ensure that our portfolios still accurately reflect their stated target risk. For investors in the more conservative models such as our All-Weather and Strategic Income models, weightings in high yield and investment grade corporate bonds were increased back to their target levels.

While only two weeks have elapsed since the rebalance, the move has already proven beneficial for most of our All-Weather and Strategic models. The below tables show the impact of the rebalance by model, with a positive net effect for the period of April 3, 2020-April 17, 2020 for all models other than the Growth allocations.

Model Returns are net of assumed annual fees of 1.25%, withdrawn quarterly.

Hanlon Investment Management is an SEC registered investment adviser with its principal place of business in the State of New Jersey with offices at 3393 Bargaintown Rd., Egg Harbor Township, NJ 08234. Being a registered investment advisor does not imply any level of skill or training. This material should not be construed as an offer to sell or the solicitation to buy any security. We are not soliciting any action based on this material. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. Hanlon Investment Management and its representatives are in compliance with the current registration and notice filing requirement imposed upon registered investment advisers by those states in which Hanlon Investment Management maintains clients. Hanlon Investment Management may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by Hanlon Investment Management with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status, service and fees of Hanlon Investment Management, please contact Hanlon Investment Management or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).


For additional information about Hanlon Investment Management, including fees and services, send for our disclosure statement as set forth on Form ADV from Hanlon Investment Management using the contact information herein. Please read the disclosure statement carefully before you invest or send money.