NNF 10 is a 10 stock portfolio which has an equal 10% allocation across all stocks in the portfolio. I noticed that the weightage seems to be higher for a few stocks especially while some are weighted less than 8-9%. Why this irregularity in weightage ? How should one resolve this ?
Weightage to all stocks in Mi NNF 10 will be at a standard 10% each. When the price of certain stock(s) shoots up, the weights will naturally go higher due to its direct proportionality with price. Between 2 rebalances, there will certainly be fluctuations in weights due to change in prices of stocks but this will will be brought back to 10% in every rebalance. You may rebalance without ignoring / customizing any order which will further ensure that your portfolio is aligned to match the model portfolio at all times.
Let us see this with an example. Let’s say we have a 2 stock portfolio with 4 shares of stocks A priced at Rs 25 & 2 shares of stock B priced at Rs 50.
Total Investment in
stock A = 4 shares x Rs 25 = Rs 100
stock B = 2 shares x Rs 50 = Rs 100.
The total investment in portfolio is
Rs 100 (Stock A)+ Rs 100 (stock B) = Rs 200 & weightage to each stock is 50%.
A few days later, let’s say stock A is trading at Rs 45 & Stock B at Rs 60.
Current value of
Stock A = 4 shares x Rs 45 = Rs 180
stock B = 2 shares x Rs 60 = Rs 120
Current value of the portfolio is Rs 300 (180 + 120)
Weightage of stock A has moved up to 60% from 50% and weightage of stock B has moved down to 40% from 50% which is due to change in prices.
If you have any further doubts or questions, please send an email to firstname.lastname@example.org