Rebalancing What works in Volatile Markets December 3

Rebalancing – What works in Volatile Markets? December 3, 2009 Alan Bergin, CFA Larry Thompson & Associates 3500 Oak Lawn Avenue Suite 240 Dallas, Texas 75219 (214) 752 -5430 www. larrythompson. ne Larry Thompson & Associates Investment Management Consulting

Assumptions • Portfolio with 60% in MSCI World and 40% in the Barclay’s Aggregate • One portfolio is rebalanced annually • Other portfolio is not rebalanced at all Larry Thompson & Associates Investment Management Consulting 2

Does Rebalancing work? • After almost 35 years, rebalanced portfolio worth more Larry Thompson & Associates Investment Management Consulting 3

Cumulative Market Value Difference (Rebalanced minus non-rebalanced) • Rebalancing is not always the best solution Larry Thompson & Associates Investment Management Consulting 4

Asset Allocation shifts in non-rebalanced portfolio Larry Thompson & Associates Investment Management Consulting 5

What About 2007 -2009 • Rebalanced portfolio worth more – It looked much worse through March Larry Thompson & Associates Investment Management Consulting 6

Cumulative Market Value Difference (Rebalanced minus non-rebalanced) • If not for strong 2009 recovery, rebalanced portfolios would be far behind Larry Thompson & Associates Investment Management Consulting 7

Asset Allocation shifts in non-rebalanced portfolio Larry Thompson & Associates Investment Management Consulting 8

Conclusion • Rebalancing appears to work over long time periods • Over short periods, it has mixed results – In volatile markets, review asset allocation strategy before rebalancing • Issues to consider: – Have a rebalancing plan – do not market time – Rebalancing frequency • Range based or date based? – What is the cost of the rebalancing? – Range based rebalancing appears to offer best trade-off in costs and potential to capture market movements Larry Thompson & Associates Investment Management Consulting 9