From Caution to Action: Monthly Rebalancing

Portfolio Strategy Update: Adapting to Market Trends

Given the current market outlook, we plan to initiate our next portfolio rebalance by closely tracking price movements and macro trends until March/April 2025, while holding cash until a more favorable entry point emerges. This measured approach ensures that we optimize capital deployment without unnecessary risk.

Adapting for Better Returns

While staying cautious in the short term, we have spent the past year rigorously testing various rebalancing strategies to determine the most effective approach in different market conditions. This process involved analyzing both monthly and quarterly rebalancing models, stress-testing them across multiple market cycles, and backtesting their performance from 2018 to December 2024.

After extensive testing, we have zeroed in on a monthly rebalancing strategy with a 15-stock portfolio and a 10% stop-loss as the optimal approach to maximizing returns while managing risk.

Here’s how the new monthly model compares to our current quarterly momentum model:

Key Observations from Our Testing:

• Monthly and quarterly strategies each have their strengths, but the monthly rebalance model demonstrated stronger performance over the long term, with higher CAGR and a better risk-adjusted return (Sharpe ratio).

• Portfolio diversification remains crucial; monthly model shall operate with a 15-stock portfolio.

• Risk management is refined further in the monthly model, incorporating a tighter 10% stop-loss to control downside risks.

• Churn considerations: The monthly strategy rebalances approximately 40% of the portfolio each month, whereas the quarterly model sees 75% turnover at each rebalance.

Final Thoughts

Markets are dynamic, and no single strategy is perfect for all conditions. Our extensive testing allows us to continuously refine our approach, ensuring that we stay adaptive, data-driven, and prepared for different market cycles.

For now, patience is key. Stay safe, stay informed, and happy investing!