The minimum asset allocation sets a minimum limit to the percent of a portfolio that can be allocated to a single asset. This prevents conditions where using a market cap weighted index results in a significant number of low weighted assets. For example, allocating the top ten assets on Bittrex by market cap at the time this article was being written would result in the following distribution:

  • BTC - 66.76%
  • ETH - 12.69%
  • XRP - 8.2%
  • BCH - 3.42%
  • LTC - 3.09%
  • BSV - 1.86%
  • XLM - 1.14%
  • TRX - 1.1%
  • ADA - 1.04%
  • XMR - 0.7%

We can see that the majority of the assets in the index are allocated less than 5% of the total value for the portfolio. This might be undesirable, so we can set a minimum percent. For example, if we set a 5% minimum allocation, the resulting portfolio would look like the following: 

  • BTC - 49.51%
  • ETH - 9.41%
  • XRP - 6.08%
  • BCH - 5%
  • LTC - 5%
  • BSV - 5%
  • XLM - 5%
  • TRX - 5%
  • ADA - 5%
  • XMR - 5%

We can see the weightings from the larger assets are decreased in order to increase the weightings for each of the assets that are below the 5% threshold. The outcome is no asset holds less than 5% of the total value of the portfolio.

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