Execution Strategies in Portfolio Rebalancing

As an investment advisor, you are managing a large institutional portfolio that requires periodic rebalancing due to significant inflows and market fluctuations. The portfolio has a strategic allocation of 60% equities, 30% fixed income, and 10% alternatives. Given the recent volatility in the equity markets, the current allocation has shifted to 70% equities, 20% fixed income, and 10% alternatives.

Discuss the execution strategies you would consider for rebalancing the portfolio to its target allocation. In your answer, address the advantages and disadvantages of different execution strategies, including but not limited to, market orders, limit orders, and algorithmic trading. Additionally, consider the impact of market conditions on your chosen strategy.

Support your discussion with relevant examples where applicable, and conclude with your recommendation for an optimal execution strategy that minimizes transaction costs while achieving the desired portfolio rebalancing.