Since the end of 2019, risk assets have taken a substantial hit whereas safer assets have performed well, as expected in such an environment. Rising credit spreads, especially for lower-rated credit, more than offset the fall in global yields, leading to losses across the growth fixed income spectrum.
Market movements alone would have altered a simple 60% global equity/40% government bond portfolio to about 52% equity/48% bonds over the first quarter of 2020. This is a significant deviation from the target allocation in a very short time, skirting or breaching the asset allocation tolerance ranges in many investment policies.
Rebalancing can potentially enhance return, but most importantly, it is a risk-control measure. Markets will ultimately touch bottom and rebound. In the absence of rebalancing, it would be difficult for the portfolio to keep up with a policy benchmark and recover lost value.