How Important Is Asset Allocation to an Investment Portfolio’s Performance? Less Than You’d Think
Yesterday we took a look at an overview of the 2012 Robert Haugen and Nardin Baker research “Low Risk Stocks Outperform within All Observable Markets of the World”, as explored by Financial Times columnist Terry Smith. The study essentially debunks the truism that anyone investing online
Today we look at another investment truism and whether the data across markets really supports it. That
This was based on the analysis of a significant sample of the investment portfolios offered by major pension providers. However, what the study actually demonstrated was not that 91.5% of returns were the result of asset
Another fallout of this asset allocation fixation has been, because spreading asset allocation across classes such as equities, bonds and commodities is held so dear,
The MSCI study
The chart above is based on data from the past five years and shows the difference in returns as part of a portfolio is shifted from the MSCI World Index, composed of developed market large and mid-caps, and into the MSCI World Small-Cap Index. Each dot indicates a 5% additional allocation over to the small-cap index. At 35% allocation to the Small Cap Index, returns become higher at the same risk profile.
The conclusion is that it may well not be necessary to add bonds, commodities and other asset classes
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