Aligning a client with the proper objective and populating their portfolio with the right managers is an important and challenging exercise. But, it is only the beginning. To serve clients well, portfolios needs to be regularly monitored and re-balanced as conditions change. Periodic cash flows from income or for distributions, coupled with continuous movements in the market cause portfolios to deviate from their original target.
Rebalancing to keep client portfolios aligned with their target without incurring unnecessary trading or tax costs is the challenge. It’s an inherent trade-off, and requires proper tools and diligent oversight to balance the two.
We’re equipped with the tools and know-how to manage the conflict between risk and cost based on each client’s objectives and balance the risk-cost trade-off.
Our systems enable us to monitor risk by measuring portfolio drift – the measure of how far a portfolio has departed from its original target. By defining boundaries for acceptable levels of portfolio drift, we identify accounts that require attention, and determine an appropriate plan to bring the portfolio back into alignment with the target when needed.
Managing Cost, Including Taxes
We use technology and informed judgment to make thoughtful trade-offs between risk and costs when trading is warranted. We leverage strategies as simple as using the portfolio’s income stream to rebalance to the target, or capitalize on distribution activity to do the same.
We use active tax loss harvesting and other tax-aware strategies, not just at year-end, but opportunistically throughout the year. Tax losses, captured during periods of negative performance, are valuable currency to allow more trading when needed, without the tax consequences.
Finally, we use block trading and other trade management strategies to reduce the cost of trading across client accounts when needed.