Investors consider the quirks of rebalancing

JP Morgan Chase office in New York, US. Picture: REUTERS/ERIC THAYER

Thanks to staggered rebalancing dates and the twists and turns of the S&P 500 this year, the $15bn JPMorgan Hedged Equity Fund has lost 12% while one younger sibling is down 18%. Another is losing 13%. JPMorgan Asset Management created the two younger funds with different reset dates to spread out the effects. Since then, the pair have grown to a combined $8bn, taking total assets across the strategy to more than $23bn.

By then the S&P 500 had already plunged 13% from its peak, and by the time of the next rebalance at end-August it had only dropped another 4% — meaning the puts were out-of-the-money and offered no protection. A fund from Simplify Asset Management, the Simplify Hedged Equity ETF, employs an equivalent approach, with a ladder of options across three months. The $66m product is down about 10% this year.

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