Development of Recommendations for Monitoring and Automation in the Application of Flexible Methodology for Securities Portfolios Rebalancing

Investment activity is the most effective way of accumulating free cash, aimed at obtaining additional profit from invested capital. Nowadays, investing in securities is gaining much popularity, which leads to the necessity to optimize existing approaches for security portfolio management. In addition, there is a need for the automation of investment management processes in order to timely respond to frequent fluctuations in the stock market and make appropriate decisions, which would increase portfolio efficiency. One of the main stages of portfolio management is the process of monitoring and rebalancing. Monitoring is a way for investors to continuously monitor the current effectiveness of their portfolio and make decisions on subsequent actions that correspond to the chosen investment strategy. One of these possible solutions is rebalancing the portfolio, the problem of choosing the optimal time for which is raised in the present paper. Rebalancing is a regular adjustment of the portfolio to the initially set investment strategy and goal, aimed at maintaining the level of risk and return acceptable for its holder. To date, many studies have already been conducted that prove the need for periodic rebalancing of securities portfolios. However, at the moment, management companies, when making decisions on balancing, neglect many factors affecting the effectiveness of the portfolio, believing that rebalancing involves only periodically adjusting its composition and structure to initial weights. So far, it has not been possible to develop a unified strategy for the most effective rebalancing, which would take into account dynamically changing indicators of securities portfolios. Thus, a systematic approach to rebalancing, based on a flexible methodology, would increase the efficiency of portfolio management, and an automated algorithm for monitoring and making rebalancing decisions based on it is necessary for a timely reaction to changes and can be used either by managers of management companies and individual investors. In the present paper there has been analyzed the possibility of using a flexible methodology for making decisions on portfolio rebalancing taking into account key indicators of their monitoring. The results showed that the use of monitoring to assess the need for portfolio rebalancing significantly increases its management efficiency. The comparison between portfolios which have been rebalanced by flexible model taking into account changes in their key indicators and basic portfolios that have been rebalanced “on time” showed the feasibility of using a flexible model, since the indicators of their profitability and management efficiency turned out to be several times higher at an acceptable level of risk. The result of present study is recommendations for automating the process of monitoring securities portfolios and making decisions on their rebalancing based on key monitoring indicators. The proposed recommendations for designing an IT-service for rebalancing based on the resulting model can be used by management companies or online investment brokers to develop and subsequently use this service within their own infrastructure for the most effective portfolio management.