A portfolio has a strategic target of 60% equities and 40% fixed income. The client uses a time-based rebalancing approach, reviewing quarterly. At the end of Q1, the portfolio is 68% equities / 32% fixed income. At the end of Q2, it's 72% equities / 28% fixed income. At the end of Q3, it's 65% equities / 35% fixed income. What rebalancing action is taken if the trigger for rebalancing is only time-based (quarterly) without specific percentage corridors?

Question: A portfolio has a strategic target of 60% equities and 40% fixed income. The client uses a time-based rebalancing approach, reviewing quarterly. At the end of Q1, the portfolio is 68% equities / 32% fixed income. At the end of Q2, it's 72% equities / 28% fixed income. At the end of Q3, it's 65% equities / 35% fixed income. What rebalancing action is taken if the trigger for rebalancing is only time-based (quarterly) without specific percentage corridors?

Answer options:

• Rebalance at the end of Q1, Q2, and Q3 to restore targets.
• Rebalance only at the end of Q2, as it represents the largest deviation.
• No rebalancing action is described, as percentage deviations are not given. ✅ Rebalance at the end of every quarter, regardless of deviation, to restore target weights.

Correct answer: Rebalance at the end of every quarter, regardless of deviation, to restore target weights.

Explanation: With a purely time-based rebalancing approach (quarterly review), the portfolio is rebalanced at the end of each quarter to restore the strategic target weights, regardless of the magnitude of the deviation. The percentage deviations are relevant for corridor-based rebalancing, not solely time-based.