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BLOG: Is it time to rebalance your investment portfolio?

Emma Lunn
Written By:
Emma Lunn

Having a diversified portfolio is crucial to investment success. It can help you grow your wealth, while at the same time limiting the risks you are taking with your hard-earned cash.

This means investing in a mix of different assets like shares, bonds, commodities, property and alternatives, as well as a variety of geographies and sectors. The idea is that you choose your different investments based on your goals, your time horizon and your level of risk… and then sit back and relax. Right?

Wrong. The trouble is that nothing stays the same and what was a perfectly diversified portfolio a year ago may now need some tweaking.

Rebalancing your portfolio

We always say that reviewing your portfolio a couple of times a year is enough for most people. When you do it is up to you – for long term investors the date shouldn’t matter. 

But a couple of date ‘triggers’ are January, when we’re on the scales ourselves and making new year resolutions, and February/March time, when people are thinking about the end of the tax year and making the most of their ISA and pension allowances.

There are a number of reasons as to why it’s important to rebalance. For example, there may be a life event that takes place and alters things for you financially, or your tolerance to risk could change. 

All these things will impact how you view your portfolio and whether it Is meeting your needs.

And of course, some investments may do well, while others do badly, and the portfolio needs recalibrating. Simply by failing to address imbalances that may occur naturally after significant price gains or falls, you could be introducing more risk into your portfolio than that with which you’re truly comfortable.

How 2021 has reshaped your portfolio

When it comes to rebalancing, a good place to start can be with asset allocation. If you started off with 60% in equities and 40% in bonds, for example, and it is now 75% equities and 25% bonds, are you comfortable with that?

Then look at regional and sector exposure. The Indian stock market, for example, is up some 28%* over the past 12 months and funds such as Alquity Indian Subcontinent have done even better – it is up a whopping 44.4%*. 

The price of oil has also shot up, leading funds like TB Guinness Global Energy to return in excess of 41.4%*over the past 12 months.

If you had these options in your portfolio, they have done their job, but do you have too much of them now? Is it time to trim your holdings and take some profits?

In contrasting fortunes, the MSCI China is down 21.5%* over the past year, as regulatory crackdowns have taken their toll. Funds like FSSA Greater China Growth have managed to squeeze out a positive return of 4.2%*, but others have not been so lucky.

So, to maintain a balanced portfolio, investors may also like to consider topping up on areas that have done less well – maybe redirecting regular savings to these areas over time – or rethinking that part of their strategy

2022 is not a year for one-way bets

As James Thomson, manager of Rathbone Global Opportunities fund, pointed out to me recently, with so many uncertainties in the world, 2022 is not a year for one-way bets. “We need a blend of reopening and pandemic winners, pro-cyclical and defensive, growth and value, reflation and resilience,” he said.

If I had to pick a few extra asset classes you may not currently hold in your portfolio but probably should consider, I’d go for gold and silver to hedge against central bank mistakes (which are a real possibility); financials which are far less exciting than technology but would benefit from rising inflation; high yield bonds as it’s probably the only are of fixed income that has the possibility of giving a real return after inflation; and mining as play on the transition to a cleaner economy – we need a whole load of metals to get electric vehicles on the road.

Funds to consider in these areas include BlackRock World Mining Trust: Jupiter Gold & Silver or Ninety One Global Gold: Man GLG High Yield Opportunities or Baillie Gifford High Yield Bond; and GAM Star Credit Opportunities or Jupiter Financial Opportunities, depending on whether you prefer bonds or equity financials.

Whatever you do, make sure your portfolio is right for you.


*Source: FE fundinfo, total returns in sterling, one year to 21 December 2021

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet’s views are her own and do not constitute financial advice.

Juliet Schooling Latter is research director at FundCalibre