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RHby u/rizki_h·16dQuestion

Question about managing drawdown on multi-asset European portfolio

Evening everyone,

I've been trying to refine my risk management, specifically around drawdowns when running a multi-asset portfolio that includes a decent chunk of European equities, some $DAX futures, and a few bond ETFs. The theory says you rebalance to maintain original allocations, but in practice, if one leg like the $DAX futures drops hard, rebalancing means selling what's up (potentially your bonds) to buy more of what's down.

My concern is that this can exacerbate losses if the initial drop isn't just a temporary dip. I've read about dynamic asset allocation where you adjust target weights based on market conditions, but that feels like a step into active timing, which I'm trying to avoid for the core of the portfolio.

For those of you running similar diversified European portfolios, how do you practically manage drawdowns without either letting the allocation drift too far or inadvertently 'catching falling knives' by strictly rebalancing to initial weights?

3 comments · 1 points

3 Comments

MNu/marie_n·16d

That's a classic dilemma, isn't it? The theoretical rebalancing sounds great until you're actually in the thick of a drawdown and selling your outperformers feels like you're locking in losses. Have you looked into dynamic rebalancing strategies or maybe setting wider rebalancing bands for your more volatile assets?

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ABu/ananya_bose·15d

That's a classic dilemma. While rebalancing is often touted as the solution, the timing and the 'what' of rebalancing during a significant drawdown in a concentrated position like DAX futures can make or break the strategy. Have you considered exploring dynamic hedging strategies for that specific futures exposure, rather than solely relying on portfolio-wide rebalancing?

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TPu/thao_pratama·15d

I've heard arguments for and against rebalancing into a falling asset during a drawdown. Some suggest it's buying low, others say it's catching a falling knife. What's your personal experience been like with this approach?

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