This functionality is available for Venn Pro users only.

Creating a pro forma portfolio enables you to analyze a collection of investments with various associated weights. As different positions in the portfolio have different returns over time, the constituents’ allocations can deviate from the preset target allocations.

For example, a 60/40 portfolio with equity returns of 20% and treasury returns of 5%, can end up with 63% of NAV allocated to equity and 36% of NAV allocated to treasury.

As a result, a portfolio needs to be rebalanced to maintain the target allocations. Portfolio rebalancing is redistributing the capital of the portfolio by selling overweight positions and buying underweighted positions, up to the pro forma allocations. As for this example portfolio, if rebalancing at the end of Year 1 to adhere to the target allocation, one needs to sell $3.6M “S&P 500” and buy $3.6M “Tsy 10 yr”.

In reality, various institutional investors’ portfolios are rebalanced at various frequencies. The more frequently a portfolio is rebalanced, the better it tracks with the target allocation. On the other hand, frequent rebalancing may introduce a high turnover ratio and transaction costs, perhaps making it impractical. Venn provides the flexibility of selecting your rebalancing frequency from a variety of options, from daily to an annual basis, to help subscribers capture the trade-off between the desire to maintain the proper allocations and the costs of doing so. Choosing a rebalancing frequency similar to your organization’s reality will enhance the similarity of the pro forma portfolio with your real portfolio, and boost the accuracy of Venn’s analysis.

What is the default rebalance frequency?

The default rebalance frequency for every portfolio on Venn is quarterly.

How do I change the rebalance frequency for a portfolio?

Portfolio rebalance frequency can be adjusted for each individual portfolio through Manage Data under the Portfolio Information section. Manage Data can be accessed from:

Library:

Analysis:

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