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The performance of asset allocation mutual funds

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Listed:
  • Zhengnan Yin

    (University College Cork)

  • Niall O’Sullivan

    (University College Cork)

  • Meadhbh Sherman

    (University College Cork)

Abstract

We analyze the performance of asset allocation funds using a best-fit multifactor model that includes both stock and bond market factors. Utilizing large samples of allocation funds from both the US and the UK, we find that, on average, asset allocation funds do not outperform their benchmarks, and there is little or weak evidence of performance persistence when examining both decile portfolios and small-size portfolios. However, asset allocation funds still demonstrate superior abilities. At the individual fund level, some funds exhibit significant positive alphas, stock market timing, and bond market timing in both the US and UK markets. Furthermore, we find that US allocation funds with low past maximum drawdowns (MDDs) outperform those with high past MDDs during periods of high stock market returns and high stock market volatility. In contrast, UK allocation funds with low past MDDs outperform those with high MDDs when bond market returns are high.

Suggested Citation

  • Zhengnan Yin & Niall O’Sullivan & Meadhbh Sherman, 2024. "The performance of asset allocation mutual funds," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 38(4), pages 465-514, December.
    • Handle: RePEc:kap:fmktpm:v:38:y:2024:i:4:d:10.1007_s11408-024-00457-2
    DOI: 10.1007/s11408-024-00457-2
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    More about this item

    Keywords

    Asset allocation fund; Fund performance; Market timing; Maximum drawdown; Performance persistence; Bootstrap;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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