Audio-Paper: The Tranching Dilemma A Cost-Aware Approach to Mitigate Rebalance-Timing Luck in Factor Portfolios.

In this episode, the Concretum Research Team breaks down a hidden but powerful force in systematic investing: Rebalance Timing Luck—the idea that two identical factor strategies can produce dramatically different long-term returns simply because they rebalance on different days. Drawing from a new study by Carlo Zarattini and Alberto Pagani, the discussion reveals how a concentrated U.S. equity momentum strategy showed nearly 350 bps of annualized performance dispersion across monthly schedules, and why traditional fixes like tranching—splitting a portfolio into multiple staggered sub-portfolios—are not the free lunch they appear to be. While tranching reduces timing noise, it also increases trading costs, creating what the authors call The Tranching Dilemma, where the optimal number of tranches depends heavily on portfolio size: too few magnifies luck, too many erodes returns. The episode offers a practical, cost-aware framework for determining the right balance, making it essential listening for systematic traders, quant PMs, and anyone curious about why “identical” smart-beta products often behave nothing alike.