Weight drift

Also seen as: drift, portfolio drift, allocation drift

Why do actual weights drift away from their targets?

A weight is a holding's value divided by the portfolio's total value, so a single price move changes every weight at once. When one sleeve rallies, its own value rises and it also lifts the total — but its numerator rises faster than the shared denominator, so its weight climbs. Every other holding's weight falls even if its price never moved, because the same value is now a smaller share of a larger total. The effect compounds the longer a strategy goes without rebalancing.

What does weight drift do to a strategy's risk?

Drift moves a strategy away from the risk profile it was designed with. The holdings that grow are, by definition, the ones that have recently risen, so drift concentrates the portfolio into whatever has just performed best — a strategy built as a balanced mix gradually behaves more like its strongest sleeve. That cuts both ways: the drifted portfolio captures more of a continuing rally in that sleeve, and more of a reversal in it. Fincanva reports what the drifted portfolio actually did; it does not tell you how much drift to tolerate.

Defaults in Fincanva

• Between rebalances nothing is bought or sold on the strategy's own schedule, so drift accumulates until the next rebalance date.
• At each rebalance the strategy trims what has grown past its target and tops up what has fallen below, returning the mix to plan.
• The targets that drift are the weights the allocation method produced, so drift is always measured against that method's output rather than against a fixed mix.
• One method treats drift as the point rather than the problem: Floating leaves existing holdings where the market has moved them and resets them only at a realignment.
• Rebalancing is scheduled by a cadence in months, not triggered by a drift threshold — how far weights may drift before they are reset follows from the cadence you choose. See rebalance and how often your strategy rebalances.

Worked example

A strategy targets 60% in an equity ETP and 40% in a bond ETP, and starts a period with 60 and 40 on a total of 100. Over the period the equity sleeve rallies 30% while the bond sleeve slips 3%: the equity sleeve is now worth 78, the bond sleeve 38.8, and the total is 116.8. The actual weights are 78 ÷ 116.8 = 66.8% equity and 38.8 ÷ 116.8 = 33.2% bonds — the 60/40 strategy is now running roughly 67/33 without a single trade being placed.

To restore the target at the next rebalance the strategy sells 7.9 of the equity sleeve (down to 60% of 116.8 = 70.1) and buys 7.9 of the bond sleeve (up to 46.7). Had the same rally happened under a slower cadence, the weights would have kept drifting past 67/33 before anything corrected them.

Drifted weights describe what a strategy's mix would have become on historical data, not what it will become, and no drifted portfolio shown here is a recommendation to rebalance or to leave it alone. Fincanva provides no financial advice — see Is this financial advice?.