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Strategic asset allocation: determining the optimal portfolio with ten asset classes

Strategic asset allocation: determining the optimal portfolio with ten asset classes

15-12-2009 | Research

Research shows strategic asset allocation is far more important than market timing and security selection. But which alternative asset classes add value to a traditional portfolio?

Speed read

  • Study looks at 10 different investment categories simultaneously
  • Real estate, commodities, and high yield add the most value
  • Adding these three asset classes comes close to an all-asset portfolio

This article1 explores which asset classes add value to a traditional portfolio of stocks, bonds and cash. The authors also determine the optimal weights of all asset classes in the optimal portfolio. This article adds to the literature by distinguishing 10 different investment categories simultaneously in a mean-variance analysis as well as a market portfolio approach. The authors also demonstrate how to combine these two methods.

The results suggest that real estate, commodities, and high yield add most value to the traditional asset mix. A study with such a broad coverage of asset classes has not been conducted before, neither in the context of determining capital market expectations and performing a mean-variance analysis, nor in assessing the global market portfolio.

1 Bekkers, N., Doeswijk, R. Q. and Lam, T. W., 2009, ‘Strategic asset allocation: determining the optimal portfolio with ten asset classes’, The Journal of Wealth Management.

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