The American S&P 500 index lost about a third of its value during the recent selloff, this led to the fact that now investors have to activate the buy shares and sell bonds to maintain the target asset allocation.
At this stage, the goal of managers is to support the nascent rally in equities that followed the collapse of the markets after the coronavirus. If investors are rebalancing their portfolios at the end of the quarter should expect an increase in stock prices. The portfolios in which the proportion of shares accounted for 60%, while the share of bonds - 40%, may now have a more even ratio of the two asset classes that will help to ensure that some investors will need to refocus on the action.
Director of ratings combined assets in Morningstar Leo Acheson pointed to the fact that a Fund may increase investments in stocks in several ways. This includes selling bonds to buy stock, investing fresh money into shares or the use of cash in their portfolios. Further, Acheson said that a good share of the money managers are not waiting for the end of the quarter, instead, they are busy adjusting the ratio of stocks and bonds in order to maintain the desired level of risk.
“As soon as managers rebalancing and reallocating funds in favor of the stock to return to its strategic ratio - it could support the shares,” he continued.
Moving away from recent lows, the value of American shares have soared by 17%. We remind you that after the Federal reserve held a series of stimulus measures, and the Senate has allocated 2 billion USD for assistance to unemployed persons and industries affected by the epidemic of the coronavirus, indicators of the US stock market went up. Understand that this volatility is not over as the coronavirus continues to cause significant damage to all world economies.
Despite the current situation at the fed pledged to buy bonds worth billions of dollars, including Treasury securities. The paper plans to buy 75 billion USD - it can serve as a stimulus for those who want to rebalance the portfolio.
Michael O'rourke, who is the main strategist on the markets at JonesTrading said - “You buy shares at much lower prices than they were before, and sell bonds, which artificially buying up the Federal reserve system.”
Experts pointed out that the flows generated by the rebalancing have a significant impact on the price of assets. This leads to the fact that the dynamics of bonds is clearly ahead of the dynamics of the stock. Thus, the S&P 500 over the past five days rose by 7%, while its bonds have shown dynamics 10% better than stock.
Investment Director company Wilshire Consulting Steve of Forest said, “other things being equal, the proportion of stocks (portfolios) of these institutions is quite below target, and this means that they need to buy to get back to his goal. Of course, around these balansirovka there are also some natural buy and sell.”