Rebalancing Return on Commodity portfolio

[ishwar_jindal]

The reading 42 in CFAI 2016 book on Alternative investment says below (in quote) while explaing rebalancing return portion of total return.
It would be very helpful if someone who has understood this kindly share a numerical example or some kind of example with numbers which can show the surplus.

 

[saurabhm]

I dont think we need to go into that extnt of solving numerical example. You can understand it as a diversification return. For example, assume that the price of gold increases too high to the extent of increasing the proportion of the index portfolio invested in gold to a level above its defined weight in the index. To restore the defined weight, gold will be sold at higher price and capital gains will be realized by the index. if you compare this with an individual investor who does not sell at this high price, he will loose when the gold gets back to its original price. Therefore, this rebalancing strategy allows greater returns in volatile markets such as commodities where prices tend to be mean reverting. Hope this helps

 

[ishwar_jindal]

Thanks Saurabh. After posting this question I vaugeuly realized that this could (selling extra to return back to indexed level) be the way to get return.