San Diego County Employees Retirement Association approved implementing a portfolio rebalancing strategy it calls a “beta engine,” said Johanna Shick, communications manager for the $8.4 billion fund. The model is designed to evaluate the relative performance of stocks compared with bonds and make incremental adjustments to the fund’s overall allocation targets to capture excess performance. The strategy includes five rules designed by staff and based on key economic indicators such as consumption, dividend yields and trading volume. Using a paper portfolio to test the beta engine since July 1, 2006, fund officials concluded the model would have added 18 basis points to the fund’s returns.
Consultant Ennis Knupp endorsed the concept, saying that while they were “less sanguine than investment staff on this program’s ability to generate consistent alpha, we find value in an approach that does not rely solely on the subjective views of an individual or two as it relates to rebalancing decisions.”
Separately, association officials committed $50 million to TCW Special Mortgage Credit Opportunities Fund.
