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1/ What is Fund Rebalancing? If you’re following financial twitter or the financial news this week, you’ve probably read commentary calling for significant selling due to “quarterly fund rebalancing.” But what does that mean exactly? Welcome to Fund Rebalancing 101...
2/ Funds (pensions, sovereign wealth funds, etc.) typically have a target portfolio weighting across stocks and bonds. Let’s say that target weighting was 50/50. You start a quarter at that level, but if stocks appreciate much more than bonds, you may be at 60/40 at quarter end.
3/ So to get back to your target weighting, you have to sell stocks and buy bonds. This groundswell can move markets. Given the appreciation of stocks relative to bonds in Q2, many expect this action to drive a wave of selling of equities. And that’s it. Fund Rebalancing 101!

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