Monthly ETF Rebalancing: Strategic and Equal-Weight Portfolios

Summary

The document describes a QSTrader backtest framework for comparing monthly rebalanced ETF portfolios. Each month, the strategy liquidates holdings and reallocates account equity to target weights. The examples include a 60/40 US stock and bond mix, a diversified strategic allocation across equities, bonds, commodities, and real estate, and an equal-weight version of that multi-asset ETF set. The article also outlines how a shared runner can simplify changing weights and dates.

Historical results from the stated backtest period show the 60/40 portfolio lagging a buy-and-hold SPY benchmark in compound growth, while the strategic and equal-weight portfolios performed worse, with the equal-weight portfolio suffering the largest drawdown. Transaction costs are included, and the article attributes results to both the market period—especially the 2008 crisis—and the weak relative performance of several non-US-equity holdings. These findings are specific to the selected ETFs, sample dates, and monthly full-liquidation design; the article notes that shorter available histories and missing substitute instruments constrained the portfolio choices. It points toward risk-based allocation as a possible next topic.

Key ideas

• The backtest rebalances ETF holdings monthly by liquidating positions and restoring target dollar weights.
• The article compares a 60/40 portfolio with strategic and equal-weight allocations across eight ETFs.
• In the tested period, the diversified portfolios underperformed the buy-and-hold SPY benchmark, and equal weighting had the largest drawdown.
• Results reflect the chosen securities, rebalance rules, transaction cost assumptions, and a period dominated by the 2008 crisis.
• The article identifies risk-based weighting as an alternative to allocating capital solely by dollars.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.