Performance of Six Sigma Rebalancing for Portfolios Mixing Polar Investment Styles

The paper investigates usefulness of a rebalancing strategy that was proposed in 2014 by Boďa and Roháčová and is based on ideas borrowed from the managerial concept Six Sigma. Centring upon a small investor who is willing to invest into S&P 500 Index components in an attempt to track the S&P 500 Index, the paper compares the performance of different rebalancing strategies for four different sets of monthly data ranging from 2011 to 2017. Rebalancing is undertaken on a monthly basis and tracking portfolios are diversified by investing in proportions into stocks belonging to investment styles defined by size (big/small caps) and market-to-book ratio (growth/value stocks). The results show that the Six Sigma rebalancing strategy is superior in a transaction-cost-free environment, but when transaction costs are accounted for, it is dominated by the buy-and hold strategy and a liberal threshold rebalancing strategy. Overall, periodic rebalancing fares unsatisfactorily with respect to criteria adopted for performance assessment.

Investment Style Preference and its Effect Upon Performance of Tracking Portfolios

Any task of portfolio creation requires that a suitable pre‑selection of assets is made, out of which the resultant portfolio is to be formed. Several approaches in passive investing implemented through portfolio tracking are applied in practice, and assets are pre‑selected frequently on the basis of their capitalization or value/growth potential. The paper studies to which extent the investment style practiced by a small investor affects the performance of the tracking portfolio. The design of the analysis is experimental and hinges on tracking the S & P 500 Index in three different periods with assets pre‑selected by diverse investment styles. Taking the approach of with linear and quadratic tracking, two factors are analyzed on that occasion: the investment style (big vs. small market capitalization, value vs. growth assets, Fama‑French stratas of assets) and the number of assets (10, 20, 30, 40, 50 assets). It is found that while small market capitalization portfolios were preferable in the first two parts of the investigated time frame, this pattern ceased to hold in the third last part with no guidance for a recommendable investment style.