Impact of Transaction Costs on Portfolio Rebalancing

As a portfolio manager at XYZ Asset Management, you are evaluating the impact of transaction costs on the trading strategy for a large client portfolio. You have identified that the portfolio frequently undergoes rebalancing to maintain its target asset allocation. While calculating the expected returns of the rebalancing strategy, you realize that transaction costs can significantly affect net returns. Transaction costs may include brokerage fees, market impact costs, and the bid-ask spread. Understanding these costs is essential for effective portfolio management.

Which of the following statements best describes the impact of transaction costs on portfolio rebalancing?