An important decision investors have to make, is how to allocate their assets. They need to strike a balance between risk and expected return in order to realize their financial goals.
Diversification is not a new idea. The Talmud already suggests doing so by simply spreading your wealth equally over the different asset classes available. This simple asset allocation rule has been put on the defensive since the rise in popularity of the Modern Portfolio Theory (MPT) developed by Markowitz in 1952. This theory leans heavily on mathematical modelling using correlations between different assets.
However, recent studies* into asset allocation conclude that the simple allocation rule still works surprisingly well. It scores well on Sharpe ratio compared to other more complicated asset allocation strategies. These other strategies are based on passive allocation models, such as the MPT, and on dynamic strategies.
So what is behind the success of the simple asset-allocation rule? Risk and costs are managed quite effectively by avoiding extreme positions in one particular asset and keeping portfolio turnover low. On the contrary, the various more complicated strategies depend heavily on parameters which are notoriously difficult to predict: future returns, volatility of returns and correlations. These parameters can lead to extreme positions and may require frequent rebalancing.
Robeco Quantitative Research believes the simple 1/N allocation rule combined with periodic rebalancing is a good starting point. It can for instance be applied to a factor portfolio including value, momentum and low-volatility equities. We are currently investigating various alternative approaches to equally weighted factor allocation.
The content displayed on this website is exclusively directed at qualified investors, as defined in the swiss collective investment schemes act of 23 june 2006 ("cisa") and its implementing ordinance, or at “independent asset managers” which meet additional requirements as set out below. Qualified investors are in particular regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes and central banks, regulated insurance companies, public entities and retirement benefits institutions with professional treasury or companies with professional treasury.
The contents, however, are not intended for non-qualified investors. By clicking "I agree" below, you confirm and acknowledge that you act in your capacity as qualified investor pursuant to CISA or as an “independent asset manager” who meets the additional requirements set out hereafter. In the event that you are an "independent asset manager" who meets all the requirements set out in Art. 3 para. 2 let. c) CISA in conjunction with Art. 3 CISO, by clicking "I Agree" below you confirm that you will use the content of this website only for those of your clients which are qualified investors pursuant to CISA.
Representative in Switzerland of the foreign funds registered with the Swiss Financial Market Supervisory Authority ("FINMA") for distribution in or from Switzerland to non-qualified investors is ACOLIN Fund Services AG, Affolternstrasse 56, 8050 Zürich, and the paying agent is UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zürich. Please consult www.finma.ch for a list of FINMA registered funds.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco/RobecoSAM AG product should only be made after reading the related legal documents such as management regulations, articles of association, prospectuses, key investor information documents and annual and semi-annual reports, which can be all be obtained free of charge at this website, at the registered seat of the representative in Switzerland, as well as at the Robeco/RobecoSAM AG offices in each country where Robeco has a presence. In respect of the funds distributed in Switzerland, the place of performance and jurisdiction is the registered office of the representative in Switzerland.
This website is not directed to any person in any jurisdiction where, by reason of that person's nationality, residence or otherwise, the publication or availability of this website is prohibited. Persons in respect of whom such prohibitions apply must not access this website.