What Does the End of the Quarter Mean for Portfolio Management?

The "end of the quarter" refers to the conclusion of one of four specific three-month periods on the financial calendar. The four quarters end in March, or Q1; June, or Q2; September, or Q3; and December, or Q4. These are considered important times for investors. Many businesses, analysts, government agencies, and the Federal Reserve release critical new data about various markets or economic indicators at the end of a quarter.

The Securities and Exchange Commission (SEC) requires all public companies to issue quarterly reports and file quarterly financial statements.

There's a widely held belief in financial circles that hedge funds, pension funds, and insurance companies always rebalance their portfolios at the end of each quarter. While no proof or evidence has ever been put forward to confirm this practice or its prevalence, the very idea reinforces the concept that the end of a quarter is significant.

Even if major financial players do not always rebalance at the end of quarters, many investors use this time to re-evaluate their own portfolio management, changing which assets comprise the portfolio or setting new portfolio targets. Not only is it a good idea for investors to monitor their investments from time-to-time but rarely is so much new, actionable information released as during the end of a quarter.

Rebalancing a Portfolio

Rebalancing involves the periodic sale and purchase of assets within a portfolio to maintain a target ratio. Consider an investor who wants their portfolio to be comprised of 50% growth stocks, 25% income stocks, and 25% bonds. If during Q1, the growth stocks outperform the other investments substantially, the investor may decide to sell some growth stocks or purchase more income stocks and bonds to bring the portfolio back to a 50-25-25 split.

key takeaways

  • The end of the three-month period known as a financial quarter is considered an important time for investors.
  • Companies, financial analysts, and government agencies (including the Fed) all release reports and critical data at the end of a quarter.
  • Both retail and institutional investors often use the end of a quarter to re-evaluate and rebalance their portfolios.

Traditional rebalancing involves trading the gains of well-performing assets, by selling high, for more low-performing assets, by buying low, at the end of each quarter. Theoretically, this serves to protect a portfolio from being too exposed or straying too far from its original strategy. However, pegging rebalances to the end of quarters relies on arbitrary calendar events which may not coincide with market movements. Nevertheless, the confluence of new reports that emerge at the end of quarters usually causes market reactions and should be of concern to most participants.

Institutional Investors and Rebalancing

It is not just individual investors who consider making portfolio moves at the end of quarters. Portfolio management is also important for institutional investors, like mutual funds and exchange-traded funds, or ETFs.

There are two forms of fund portfolio management: active and passive. Passive funds generally peg their portfolios to market indexes and involve fewer changes in exchange for lower management fees. The end of a quarter is less significant for these types of funds, though if their benchmark indexes change at this time, they will as well.

Active funds have a manager or team of managers who take a more proactive approach to beat market average returns. These funds can be quite active during the end of quarters, especially if their portfolios need to be adjusted to meet their previously stated goals and strategies.

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  1. U.S. Securities and Exchange Commission. "Form 10-Q."

  2. U.S. Securities and Exchange Commission. "Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing."

  3. Blackrock. "2020 Institutional Rebalancing Survey."

  4. The Wharton School University of Pennsylvania. "Executive Education: Active vs. Passive Investing: Which Approach Offers Better Returns?"

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