The types of rebalancing that occur are:
Auto-rebalancing on a threshold basis
Our auto-rebalancing feature helps clients to stay aligned to the target asset allocation (e.g. 60% equity | 40% fixed income) of their portfolios. Research has shown that maintaining a portfolio’s target asset allocation contributes to returns in the long-term and auto-rebalancing is one of our value-added services for clients.
When the allocation of a fund is out of alignment with its target asset allocation by 15% due to market movements, the auto-rebalancing feature will be activated. For example, a fund has a target allocation of 10%. If this fund’s allocation moves by +/- 1.5%, it will activate the rebalancing feature. Once the auto-rebalancing feature is activated, an email will be sent to inform you that Endowus will be executing a rebalance after 24 hours unless you opt out.
Please note that if the deviation from the target allocation is less than $100 in value, auto-rebalancing will not be activated.
For the rebalance process, we will first redeem the excess units in the overweight funds. After the redemption is completed, the redemption proceeds will be invested into the underweight funds to bring the portfolio to its target asset allocation. The process takes up to 7 business days to complete.
You have the option to opt out of auto-rebalancing by switching off this feature: Log in to your Endowus account via a web browser > Preferences > Auto-rebalancing Off.
Auto-rebalancing for Factors Portfolio
As a discretionary portfolio, auto-rebalancing is turned on by default for the Factor Portfolio. Please note that if you opt out the auto-rebalancing feature in Preferences, the opt-out will not apply to the Factor Portfolio.
For Factor Portfolio, we will auto-rebalance the portfolio’s asset allocation and make changes that are necessary to meet the portfolio’s objectives. If we find better-performing and/or lower-cost funds that can value-add to the Factors Portfolio, we will directly change the funds in the portfolio. Please be assured that you will be informed of any changes that happen to the funds in the Factor Portfolio.
The discretionary nature of the Factor Portfolio allows us to upgrade the portfolio more efficiently for you. We do not make tactical changes to the portfolio’s asset allocation according to economic conditions. We adopt a passive asset allocation strategy, whereby we encourage clients to stay invested in a risk-appropriate asset allocation until they have achieved their investment objective.