Portfolio Rebalancing Using Derivatives: Futures Overlays
Rebalancing with derivatives can be done using futures or options. Here we discuss the pros and cons of applying a futures overlay to a traditional rebalancing program.”
~ Joseph Stein, Director of Quantitative Research
Natixis Investment Managers Solutions
Rebalancing portfolios using derivatives offers a range of additional benefits compared to traditional approaches. This short paper examines the pros and cons of applying a futures overlay to a traditional rebalancing program. Topics include:
- Tracking error
- Tax considerations
- Rebalancing thresholds
- Sample scenarios
- Backtested results
- Operational and transaction costs
Rebalancing Approaches Using Derivatives: A Look at Futures Overlays
Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.
This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are as of July 2022 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted. Actual results may vary.