Evaluating Rebalancing Considerations

Hard Trading & Rebalancing Portfolio Monitoring

As a portfolio manager, you are responsible for the monitoring and rebalancing of client portfolios. One of your clients, Mr. Thompson, has a diversified portfolio consisting of equities, fixed income, and alternative investments. Recently, you have observed that the equity portion of his portfolio has performed significantly better than other asset classes due to a bull market. Currently, the portfolio composition is 70% equities, 20% fixed income, and 10% alternatives, while the target allocation is 60% equities, 30% fixed income, and 10% alternatives.

While making your decision on rebalancing the portfolio, you consider several factors including transaction costs, market conditions, and the potential impact on Mr. Thompson's overall risk profile. Given this context, you aim to decide on the most suitable course of action.

What should be the primary consideration when evaluating the rebalancing of Mr. Thompson’s portfolio?

Focus solely on restoring the target allocation percentages regardless of transaction costs.

Consider the tax implications and transaction costs associated with rebalancing.

Neglect market conditions since the portfolio has deviated significantly from the target allocation.

Hint

Submitted7.4K

Correct6.4K

% Correct87%