Expert perspective

Why regular rebalancing is key to maximizing factor premiums

March 14, 2021

Antonio Picca's headshot

Head of Factor-Based Strategies

What the findings indicate
Key points:



Daily rebalancing outperforms monthly and biannually rebalanced portfolios
Momentum
This bar chart for the momentum factor includes four time periods; January 1990 to August 2019, period covering the dot-com bubble, the global financial crisis, or GFC, and all other years that exclude the GFC and dot-com bubble. For full period of nearly 30 years, the excess return for daily vs. monthly rebalancing is 1.6% and the excess return for daily vs. bi-annual rebalancing is 3.3%. The dot-com excess return for daily vs. monthly rebalancing is 2.0% and the excess return for daily vs. bi-annual rebalancing is 8.0%. The GFC excess return for daily vs. monthly rebalancing is 4.3% and the excess return for daily vs. bi-annual rebalancing is 2.9%. The all-other-years excess return for daily vs. monthly rebalancing is 1.3% and the excess return for daily vs. bi-annual rebalancing is 2.1%.
Value
This bar chart for the value factor includes four time periods; January 1990 to August 2019, period covering the dot-com bubble, the GFC, and all other years that exclude the GFC and dot-com bubble. For the full period of nearly 30 years, the excess return for daily vs. monthly rebalancing is 1.9% and the excess return for daily vs. bi-annual rebalancing is 3.3%. The Dot-Com excess return for daily vs. monthly rebalancing is 3.5% and the excess return for daily vs. bi-annual rebalancing is 7.0%. The GFC excess return for daily vs. monthly rebalancing is 5.1% and the excess return for daily vs. bi-annual rebalancing is 4.3%. The all-other-years excess return for daily vs. monthly rebalancing is 1.2% and the excess return for daily vs. bi-annual rebalancing is 2.2%.
Quality
This bar chart for the quality factor includes four time periods; January 1990 to August 2019, period covering the dot-com bubble, the GFC, and all other years that exclude the GFC and dot-com bubble. For the full period of nearly 30 years, the excess return for daily vs. monthly rebalancing is 0.8% and the excess return for daily vs. bi-annual rebalancing is 1.5%. The Dot-Com excess return for daily vs. monthly rebalancing is 5.7% and the excess return for daily vs. bi-annual rebalancing is 6.7%. The GFC excess return for daily vs. monthly rebalancing is 4.2% and the excess return for daily vs. bi-annual rebalancing is 3.0%. The all-other-years excess return for daily vs. monthly rebalancing is negative 0.8% and the excess return for daily vs. bi-annual rebalancing is negative 0.2%.
Multifactor
This bar chart presents a composite of the momentum, value, and quality factors across four time periods; January 1990 to August 2019, period covering the dot-com bubble, the GFC, and all other years that exclude the GFC and dot-com bubble. For the full period of nearly 30 years, the excess return for daily vs. monthly rebalancing is 2.0% and the excess return for daily vs. bi-annual rebalancing is 3.9%. The Dot-Com excess return for daily vs. monthly rebalancing is 1.7% and the excess return for daily vs. bi-annual rebalancing is 7.2%. The GFC excess return for daily vs. monthly rebalancing is 6.6% and the excess return for daily vs. bi-annual rebalancing is 5.9%. The all-other-years excess return for daily vs. monthly rebalancing is 1.6% and the excess return for daily vs. bi-annual rebalancing is 2.7%.

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