Perspectives: The Importance of Asset Allocation

Abstract

This article discusses the impact on performance of the long-term asset allocation policy relative to the impact of active management. Most of the variation in time-series returns for a typical fund comes from general market movement. The remaining variation comes about equally from asset allocation policy and active management.

Keywords: Performance Measurement and Evaluation, Performance Attribution, Return Measures (Arithmetic, Geometric, Time Weighted, Dollar Weighted), Portfolio Management, Asset Allocation