The performance of asset allocation mutual funds

Zhengnan Yin (), Niall O’Sullivan and Meadhbh Sherman
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Zhengnan Yin: University College Cork
Niall O’Sullivan: University College Cork
Meadhbh Sherman: University College Cork

Financial Markets and Portfolio Management, 2024, vol. 38, issue 4, No 3, 465-514

Abstract: 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.

Keywords: Asset allocation fund; Fund performance; Market timing; Maximum drawdown; Performance persistence; Bootstrap (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G23 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11408-024-00457-2

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