What is the Rebalance Process for Wellesley/Wellington

[ejman]

I have over 1/3 of my liquid NW in those two funds and it occurred to me I don't actually know what rebalance process they actually use. It is just a curiosity thing - I'm happy with the performance they have delivered at low cost since I first bought them back in 1987. But how do they actually do it? Is it a continuous process - i.e. rebalance every day? do they use rebalancing bands? or a certain time period? something else?

 

[Midpack]

One source for an answer...
How often do Vanguard Target Date Funds rebalance? | The Inquiring Investor

How often does my target date fund (VFIFX) rebalance? Robert first searched through the prospectus and couldn’t find anything there so he had to place me on hold and speak with another department. When he came back he told me that Vanguard rebalances daily just by properly managing the money coming into the fund from new investors/re-investors and the money going out of the fund from withdrawals. He also told me that if the portfolio skews more than 2 or 3 percent from its target allocation, the fund will actively buy or sell shares of its underlying holdings to rebalance. I pressed Robert on this point by asking him if it was an automatic 2% trigger or if the fund would only make an active adjustment during set time periods. In other words, did the manager check the fund every quarter and only rebalance if the assets were more than 2% off, or would the manager rebalance any time the the assets were 2% off – even if it meant making trades every other day (like in a volatile market)?

Robert’s response to this was interesting – although in retrospect unsurprising. He said that Vanguard does not release that information because of the potential for abuse.If it was public knowledge that Vanguard rebalanced its funds on certain dates, then traders could take advantage of that fact by manipulating the price of the underlying funds that the VFIFX would have to buy in order to rebalance (In this case, VFIFX has 3 underlying funds: the Vanguard total stock market index, the Vanguard total international stock market index, and the Vanguard total bond index). I’m not entirely sure how someone could benefit from this knowledge, but I’m guessing it is related to the ways in which a hedge fund manager can manipulate stock prices.

 

[ejman]

Thank you Midpack. I would assume the same approach applies to Wellsi/Welltn. I guess an individual could somewhat use the continuous rebalance approach during the accumulation phase (by redirecting a paycheck) although it would probably be more trouble than its worth.

 

[steelyman]

That's very interesting info on the target date fund approach. I'm trying to clone one of them, but want to adjust/balance annually, when the RMD shows up (it's inherited, so that has to start). Currently, I am in the process of setting it up with cash in the account, but it'll be nice to get to where it's on autopilot and just a check of Vanguard's allocation once a year.