Are you guys talking about rebalancing between asset classes (stocks, bonds, etc) or rebalancing sectors within domestic equities? utrecht's post where he refers to sectors has me confused.
My personal portfolio is made up of some index funds and some managed funds. I have a few sector funds that I believe in (health care, Consumer Staples and REITS) that increase returns and lower volatility at the same time, but mostly I have large, medium and small cap funds. I've held this AA for a long time with some very slight adjustments and my portfolio has outperformed my benchmarks.
I haven't always rebalanced between funds but I did a lot of back testing this AA and the returns of my portfolio are higher when I rebalance my portfolio each year between all of my funds.
From 1/1/2005 to present
SP500..6.1%
Wellington...7.8%
My rebalanced 60/40 portfolio...8.2%
My un-rebalanced portfolio...7.4%