Model portfolios to automatically rebalance every quarter

From 1 October onwards, all five model portfolios will automatically rebalance every three months.

15th September 2021 09:32

From 1 October onwards, all five of interactive investor's model portfolios will automatically rebalance every three months.

interactive investor’s five model portfolios will automatically rebalance to their target allocations every quarter from the start of October.

At present, if required, the model portfolios are manually rebalanced each quarter. In order to prevent over-trading and keep a lid on transaction costs, the constituents in the portfolios are only rebalanced if their weighting notably rises or falls.

Our tolerance thresholds (which will no longer be in place from the start of October) are set at above or below 10% of the relevant strategic weighting for each asset class. For example, if a portfolio had a strategic weighting of 25% to UK equities, the portfolio would only rebalance back to benchmark if the total allocation from all funds to UK equities exceeds 27.5% or falls below 22.5% at the quarterly rebalancing point.

But, from 1 October onwards, all five model portfolios will automatically rebalance. This is in order to avoid delays in notifying customers when rebalancing occurs. Our constituents have target allocations of either 5%, 10% or 15%. The weightings are displayed on our model portfolio page.

The Active Income, Active Growth and Ethical Growth portfolios are each comprised of 10 constituents, with actively managed investment funds and trusts favoured over “passive” index-tracking options.

The Low-cost Income and Low-cost Growth models are each comprised of nine index-tracking funds or exchange traded funds (ETFs).

In each portfolio, whether it is passive, active or ethical, the constituents are all picked from the ACE 40 and Super 60 fund lists, except where more specialist funds are required to fit the optimal asset allocation.

The benefits of rebalancing

Investors who follow our model portfolios could manually balance to our target weightings. Care, however, needs to be taken not to incur unnecessary transaction costs and potential tax implications (if investments are not held in ISAs or SIPPs). Therefore, followers of the portfolios may prefer to have their own tolerance rule and only rebalance when the weighting becomes out of kilter with the rest of the portfolio.

In practical terms, rebalancing your portfolio is just a tidying-up exercise. A diversified portfolio, like our five model portfolios, will have a mixture of different investments – typically shares, bonds and property – which behave differently from one another.

If the value of a certain investment goes up significantly more than the others, it increases your overall exposure to that asset, and in turn increases risk, which you might not be comfortable with.

By taking some or all the profits the percentage weighting is reduced back down to the risk level the overall portfolio was at when you first invested. The money can then be distributed evenly among other asset classes.

We will, of course, be continuing to cover the portfolios editorially each month (typically publishing mid-month), in which we report on the performance of the models and their constituents.

When changes to the constituents are made this will be reported in a timely fashion.

Our Model Portfolios have been compiled by investment experts to help investors who do not have the time or the confidence to make their own investment choices. There are a variety of financial goals they are designed to help people meet.

However, you should note that the selection of our Model Portfolios is not a ‘personal recommendation’. This means we have not assessed your investment knowledge, your financial situation (including your ability to bear losses), your investment objectives, your risk tolerance, or your sustainability preferences.

You should ensure that any investment decisions you make are suitable for your personal circumstances, and if you are unsure about the suitability of a particular investment or think you need a personal recommendation, you should speak to a suitably qualified financial adviser.

The past performance of an investment is not a reliable indicator of future results, and ii does not guarantee or predict the future performance of the Model Portfolios or the constituent investments.

Risk Warning(s)

The value of your investments may go down as well as up. You may not get back all the money that you invest.

Investing in emerging markets involves different risks from developed markets, in many cases the risks are greater.

The value of international investments is affected by currency fluctuations which might reduce their value in sterling.

Disclosure(s)

Annual performance can be found on the factsheet of each fund, trust or ETF. Simply click on the asset’s name and then the performance tab.

Any changes to the Model Portfolio constituents and the rationale behind those decisions will be communicated through the Quarterly Investment Outlook.

To see a list of previous updates to Model Portfolio constituent investments, please go to the relevant Model Portfolio’s ‘Timeline’.

ii adheres to a strict code of conduct. Members of ii staff may have holdings in one or more Model Portfolios (or the constituent investments), which could create a conflict of interest. Any member of staff involved in the development of research about any financial instrument in which they have an interest are required to disclose such interest to ii. We will at all times consider whether such interest impairs the objectivity of the recommendation to add/remove a constituent investment to/from a Model Portfolio.

In addition, staff involved in compiling the Model Portfolios are subject to a personal account dealing restriction. This prevents them from placing a transaction in the specified instrument(s) for five working days before and after an investment is included or amended and made public within a Model Portfolio. This is to avoid personal interests conflicting with the interests of investors in the Model Portfolios and their constituent investments.

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