Cases For Asset Allocation

Diversification is one of the most important parts of the successful portfolio investment.  Within a diversified portfolio an investor should have wide array of assets diversified across multiple classes, including but not limited to stocks, bonds, commodities, currencies, real estates, and limited partnerships.  There are also numbers of different investment strategies to consider when approaching the management of these assets.  Among these management approaches are the techniques of using separately managed accounts, individual securities or brokerage accounts and mutual funds, or a combination of any or all of these.  In addition to these management approaches, there are forces in the financial and global economic universes that need to be appropriately addressed to have effective management of these assets.   It is also important for investors to have the appropriate diversifications as well as asset allocations across multiple asset classes within any portfolios.  “Asset allocation policy explains, on average, 93.6 percent of total variation in quarterly returns; in particular plans, it explains no less than 75.5 and up to 98.6 percent of total return variation” (Jahnke, William W. 1997).   The allocation and selection of these assets needs to be weighted and selected carefully.

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Does the Asset Allocation Policy Affect the Performance of Climate-Themed Funds? Empirical Evidence from the Scandinavian Mutual Funds Market

Sustainability ◽

10.3390/su12020654 ◽

2020 ◽

Vol 12 (2) ◽

pp. 654 ◽

Cited By ~ 3

Author(s):

Łukasz Dopierała ◽

Magdalena Mosionek-Schweda ◽

Daria Ilczuk

Keyword(s):

Corporate Governance ◽

Mutual Funds ◽

Firm Size ◽

Asset Allocation ◽

Firm Value ◽

Abnormal Returns ◽

Size Factor ◽

Allocation Policy ◽

Market State ◽

Asset Allocations

The aim of this paper is to evaluate the performance of climate-themed mutual funds, taking into consideration the structure of their asset allocation, especially their geographical focus of investment. Additionally, the influence of differences in the industry allocations on the funds’ investment results is evaluated. Our analyses are based on climate-friendly mutual funds registered in Scandinavian countries (i.e., Denmark, Norway, and Sweden) during 2010–2019. To classify the analyzed funds as climate-friendly, we use the relative carbon footprint measure, which is a novelty in studies on ESG funds (meeting the environmental, social, and corporate governance criteria). In our analyses, we use the absolute performance as well as the relative performance methods. The obtained results confirm that geographical and industrial asset allocations significantly affect the performance of Scandinavian climate-friendly funds. On the basis of our studies, we may state that analyzed mutual funds do not get abnormal returns, and their performance mostly depends on the market state. Additionally, the unconditional firm size factor did not influence the return of particular portfolios, while the conditional firm size factor was significant for European, global, and North American funds. Moreover, the firm value factor was significant. Finally, the momentum factor was only significant for the emerging markets portfolio when it reached positive values.

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Asset Allocation Strategies and Commodities

10.1093/oso/9780190656010.003.0021 ◽

2018 ◽

Author(s):

Claudio Boido

Keyword(s):

Asset Allocation ◽

Asset Management ◽

Central Banking ◽

Fixed Income ◽

Fixed Income Securities ◽

Asset Classes ◽

Alternative Beta ◽

Asset Managers ◽

Selection Of ◽

Allocation Strategies

As a result of the financial crisis of 2007–2008 and subsequent central banking decisions, the asset management industry changed its asset allocation choices. Asset managers are focusing their attention on the search for new asset classes by taking advantage of the new opportunities to capture risk premia with the aim of exceeding the returns given by traditional investments, including traded equities, fixed income securities, and cash. By doing so, they are trying to improve the selection of alternative assets, such as commodities that sometimes have relatively low correlations with traditional assets. The chapter begins by describing the principles of asset allocation, distinguishing between passive and active asset allocation, also focusing on beta and alternative beta. It then concentrates on how investors can gain exposure to commodities through different investment vehicles and strategies.

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Make the Best from Comparing Conventional and Islamic Asset Classes: A Design of an All-Seasons Combined Portfolio

Journal of Risk and Financial Management ◽

10.3390/jrfm14100484 ◽

2021 ◽

Vol 14 (10) ◽

pp. 484

Author(s):

Andrea Delle Foglie ◽

Gianni Pola

Keyword(s):

Portfolio Management ◽

Asset Allocation ◽

Strategic Asset Allocation ◽

Risk Parity ◽

Asset Classes ◽

Asset Allocations

This paper aims to contribute to the existing literature in portfolio management and strategy by investigating the performance, diversification, and hedging benefits arising from integrating Sharia-compliant stocks into a conventional portfolio. Thus, this paper tests the performance of a Combined Portfolio, resulting from the combination of conventional Islamic instruments, covering different macroeconomic scenarios in the last decade (2010–2020). The strategic asset allocation was designed following the Global Macro Anima (GMA) strategy, solving a risk-parity optimisation problem using a specifically developed MATLAB™ algorithm. The findings will contribute to answering the question related to the possibility of including alternative instruments to increase diversification with hedging benefits by building asset allocations that perform well across different macroeconomic scenarios.

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Performance of Sharia Mutual Fund: The Analysis of Asset Allocation in Indonesia

Mediterranean Journal of Social Sciences ◽

10.5901/mjss.2017.v8n3p163 ◽

2017 ◽

Vol 8 (3) ◽

pp. 163-169

Author(s):

Moh. Benny Alexandri ◽

Meita Pragiwani ◽

Dhylla Laiela

Keyword(s):

Stock Market ◽

Mutual Funds ◽

Asset Allocation ◽

Mutual Fund ◽

Fund Performance ◽

Mutual Fund Performance ◽

Allocation Policy ◽

Optimum Performance ◽

The Public ◽

Lack Of Information

Abstract Mutual fund has already existed in Indonesia since 1995 but it has not been socialized. It was due to lack of information to the public about how to invest in stock market, especially in mutual fund. So that, the public have difficulties in assessing and selecting the mutual fund that can provide optimum performance and has benefits affecting the growth of mutual fund. The purpose of this research is to analyze the effect of asset allocation policy (sharia stocks, sharia bonds (sukuk), and mudharabah deposits) on the performance of mixed sharia mutual fund in Indonesia during 2010-2013. The type of this research is descriptive-verification analysis. The samples used are seven mixed sharia mutual funds in each year. So the total number of samples are twenty eight mixed sharia mutual funds during 2010-2013. The result shows that asset allocation policy for sharia stocks, asset allocation policy for sharia bonds (sukuk), and asset allocation policy for mudharabah deposits are simultaneously affecting mixed sharia mutual fund performance. It is simultaniously indicated 0.522 or approximately 52.2%.

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Life cycle versus balanced funds: An emerging market perspective

South African Journal of Economic and Management Sciences ◽

10.4102/sajems.v20i1.1695 ◽

2017 ◽

Vol 20 (1) ◽

Author(s):

Elbie Louw ◽

Cornelis H. Van Schalkwyk ◽

Michelle Reyers

Keyword(s):

Life Cycle ◽

Asset Allocation ◽

Stochastic Dominance ◽

Emerging Market ◽

The Other ◽

Retirement Savings ◽

Glide Path ◽

Asset Classes ◽

Asset Allocations ◽

Allocation Strategies

Background: Inadequate retirement savings is an international challenge. Additionally, individuals are not cognisant of how asset allocation choices ultimately impact retirement savings. Life cycle and balanced funds are popular asset allocation strategies to save towards retirement. However, recent research is questioning the efficacy of life cycle funds that switch to lower risk asset classes as retirement approaches.Aim: The purpose of this study is to compare the performance of life cycle funds with balanced funds to determine whether either dominates the other. The study compares balanced and life cycle funds with similar starting asset allocations as well as those where the starting asset allocations differ.Setting: The study has a South African focus and constructs funds using historical data for the main local asset classes; that is, equity, fixed income and cash, as well as a proxy for foreign equity covering the period 1986–2013.Method: The study makes use of Monte Carlo simulations and bootstrap with replacement, and compares the simulated outcomes using stochastic dominance as decision-making criteria.Results: The results indicate that life cycle funds fail to dominate balanced funds by first-order or almost stochastic dominance when funds have a similar starting asset allocation. It is noteworthy that there are instances where the opposite is true, that is, balanced funds dominate life cycle funds. These results highlight that while the life cycle funds provide more downside protection, they significantly suppress the upside potential compared to balanced funds. When the starting asset allocations of the balanced and life cycle funds differ, the stochastic dominance results are inconsistent as to the efficacy of the life cycle fund strategies considered.Conclusion: The study shows that whether one fund is likely to dominate the other is strongly dependent on the underlying asset allocation strategies of the funds. Additionally, the length of the glide path and the risk and return characteristics of the investable universe are also likely to influence the findings.

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Defined Contribution Pension Plans: Mutual Fund Asset Allocation Changes

The American Economic Review ◽

10.1257/aer.p20151006 ◽

2015 ◽

Vol 105 (5) ◽

pp. 432-436 ◽

Cited By ~ 11

Author(s):

Clemens Sialm ◽

Laura Starks ◽

Hanjiang Zhang

Keyword(s):

Mutual Funds ◽

Asset Allocation ◽

Mutual Fund ◽

Pension Plans ◽

Defined Contribution ◽

Fixed Income ◽

Macroeconomic Conditions ◽

Fund Managers ◽

Defined Contribution Plans ◽

Asset Allocations

In this paper we compare changes in asset allocations between mutual funds held in defined contribution pension plans and funds held by other investors. We investigate how flows into equity and fixed income mutual funds depend on macroeconomic conditions. We find that defined contribution plans react more sensitively to these conditions, suggesting effects on mutual fund managers and other investors.

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Behavioral Aspects of Portfolio Investments

10.1093/acprof:oso/9780190269999.003.0021 ◽

2017 ◽

Author(s):

Nathan Mauck

Keyword(s):

Mutual Funds ◽

Behavioral Finance ◽

Asset Allocation ◽

Hedge Funds ◽

Pension Funds ◽

Exchange Traded Funds ◽

Behavioral Biases ◽

Wide Range ◽

Money Managers ◽

Selection Of

Investors are inextricably linked to financial institutions, money managers, and the products they market. Mutual funds, exchange-traded funds (ETFs), hedge funds, and pension funds manage or hold roughly $55 trillion in combined wealth. This chapter examines these topics with a behavioral finance approach, focusing on two main ideas: the performance and rationality of each group, and the behavioral biases that relate to individuals’ selection of particular investments within each group. Research indicates that actively managed mutual funds and hedge funds underperform passive investments. Pension funds generate alpha of roughly zero on a risk-adjusted basis. The fees involved in investing in such funds exacerbate the observed underperformance in mutual funds and hedge funds. Behavioral biases provide one perspective on sources of underperformance. Further, individuals exhibit a wide range of behavioral biases that may lead to suboptimal asset allocation, including the selection of mutual funds, ETFs, and hedge funds.

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DYNAMIC ASSET ALLOCATION FOR TARGET DATE FUNDS UNDER THE BENCHMARK APPROACH

Astin Bulletin ◽

10.1017/asb.2021.6 ◽

2021 ◽

pp. 1-26

Author(s):

Jin Sun ◽

Dan Zhu ◽

Eckhard Platen

Keyword(s):

Asset Allocation ◽

Dynamic Asset Allocation ◽

Growth Optimal Portfolio ◽

Risky Assets ◽

Target Date ◽

Target Date Funds ◽

Asset Allocations ◽

Investment Choices ◽

Glide Paths

ABSTRACT Target date funds (TDFs) are becoming increasingly popular investment choices among investors with long-term prospects. Examples include members of superannuation funds seeking to save for retirement at a given age. TDFs provide efficient risk exposures to a diversified range of asset classes that dynamically match the risk profile of the investment payoff as the investors age. This is often achieved by making increasingly conservative asset allocations over time as the retirement date approaches. Such dynamically evolving allocation strategies for TDFs are often referred to as glide paths. We propose a systematic approach to the design of optimal TDF glide paths implied by retirement dates and risk preferences and construct the corresponding dynamic asset allocation strategy that delivers the optimal payoffs at minimal costs. The TDF strategies we propose are dynamic portfolios consisting of units of the growth-optimal portfolio (GP) and the risk-free asset. Here, the GP is often approximated by a well-diversified index of multiple risky assets. We backtest the TDF strategies with the historical returns of the S&P500 total return index serving as the GP approximation.

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Navigating the factor zoo around the world: an institutional investor perspective

Journal of Business Economics ◽

10.1007/s11573-021-01035-y ◽

2021 ◽

Author(s):

Söhnke M. Bartram ◽

Harald Lohre ◽

Peter F. Pope ◽

Ananthalakshmi Ranganathan

Keyword(s):

Stock Return ◽

Institutional Investor ◽

Return Predictability ◽

Investment Strategies ◽

Fixed Income ◽

Stock Return Predictability ◽

Cross Sectional ◽

The World ◽

Cast Doubt ◽

Asset Classes

AbstractThe literature on cross-sectional stock return predictability has documented over 450 factors. We take the perspective of an institutional investor and navigate this zoo of factors by focusing on the evidence relevant to the practicalities of factor-based investment strategies. Establishing a sound theoretical rationale is key to identifying “true” factors, and we emphasize the need to recognize data-mining concerns that may cast doubt on the relevance of many factors. From a practical investment perspective, much of the factor evidence documented by academics may be more apparent than real. The performance of many factors is dependent on the inclusion of small- and micro-cap stocks in academic studies, although such stocks would likely be excluded from the real investment universe due to illiquidity and transaction costs. Nevertheless, a parsimonious set of factors emerges in equities and other asset classes, including currencies, fixed income, and commodities. These factors can serve as meaningful ingredients to factor-based portfolio construction.

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Koala retrovirus genetic diversity and transmission dynamics within captive koala populations

Proceedings of the National Academy of Sciences ◽

10.1073/pnas.2024021118 ◽

2021 ◽

Vol 118 (38) ◽

pp. e2024021118

Author(s):

Briony A. Joyce ◽

Michaela D. J. Blyton ◽

Stephen D. Johnston ◽

Paul R. Young ◽

Keith J. Chappell

Keyword(s):

Genetic Diversity ◽

Antiretroviral Treatment ◽

Sexual Transmission ◽

Transmission Dynamics ◽

Rapid Decline ◽

Effective Management ◽

Additional Challenge ◽

Management Approaches ◽

Southeast Queensland ◽

Koala Retrovirus

Koala populations are currently in rapid decline across Australia, with infectious diseases being a contributing cause. The koala retrovirus (KoRV) is a gammaretrovirus present in both captive and wild koala colonies that presents an additional challenge for koala conservation in addition to habitat loss, climate change, and other factors. Currently, nine different subtypes (A to I) have been identified; however, KoRV genetic diversity analyses have been limited. KoRV is thought to be exogenously transmitted between individuals, with KoRV-A also being endogenous and transmitted through the germline. The mechanisms of exogenous KoRV transmission are yet to be extensively investigated. Here, deep sequencing was employed on 109 captive koalas of known pedigree, housed in two institutions from Southeast Queensland, to provide a detailed analysis of KoRV transmission dynamics and genetic diversity. The final dataset included 421 unique KoRV sequences, along with the finding of an additional subtype (KoRV-K). Our analysis suggests that exogenous transmission of KoRV occurs primarily between dam and joey, with evidence provided for multiple subtypes, including nonendogenized KoRV-A. No evidence of sexual transmission was observed, with mating partners found to share a similar number of sequences as unrelated koala pairs. Importantly, both distinct captive colonies showed similar trends. These findings indicate that breeding strategies or antiretroviral treatment of females could be employed as effective management approaches in combating KoRV transmission.

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