The Global Multi-Asset Market Portfolio, 1959–2012

Ronald Doeswijk, Trevin Lam and Laurens Swinkels

Financial Analysts Journal, 2014, vol. 70, issue 2, 26-41

Abstract: The market portfolio contains important information for purposes of strategic asset allocation. One could consider it a natural benchmark for investors. The authors composed the invested global multi-asset market portfolio for 1990–2012 by estimating the market capitalization for equities, private equity, real estate, high-yield bonds, emerging-market debt, investment-grade credits, government bonds, and inflation-linked bonds. They also used an expanded period (1959–2012) for the main asset categories: equities, real estate, nongovernment bonds, and government bonds.The invested global multi-asset market portfolio is the aggregate portfolio of all investors, in which portfolio weights indicate the constitution of the average portfolio. The invested global multi-asset market portfolio contains important information for purposes of strategic asset allocation. First, it shows the relative value of all asset classes according to the global financial investment community, which one could consider a natural benchmark for financial investors. Second, this portfolio may also serve as a starting point for investors who use a particular framework or follow adaptive asset allocation policies.In our study, we focused on the invested global multi-asset market portfolio, which is relevant to financial investors. We composed the invested global market portfolio for 1990–2012 by estimating the market capitalizations of eight asset classes: equities, private equity, real estate, high-yield bonds, emerging-market debt, investment-grade credits, government bonds, and inflation-linked bonds.At the end of 2012, we estimated the total market capitalization of the invested global multi-asset market portfolio at $90.6 trillion. Equities (36.3%) represent the largest asset class, followed by government bonds (29.5%). Investment-grade credits (18.5%) are also a major asset class. The total market capitalization of the five other asset categories (15.6%) is relatively small. But the total weight of the relatively small asset classes increased from 6.2% to 15.6% over 1990–2012.For the four main asset categories—equities, real estate, nongovernment bonds (investment-grade credits and high-yield bonds), and government bonds (broadly defined and including inflation-linked bonds and emerging-market debt)—we compiled data series for 1959–2012; we did not take private equity into account. At the end of 2012, the market portfolio weights for these four main categories are 37.7%, 5.3%, 20.9%, and 36.1%, respectively, and the 54-year averages are 52.0%, 3.2%, 15.1%, and 29.6%. The weight of equities in 2012 is close to the record low of 37.1% in 2011. In 2011, for the first time in our sample period, equities no longer outweigh government bonds.We showed that pension funds’ allocation to equities is a little above the market portfolio’s allocation. The sovereign wealth funds in our sample tend to allocate more to equities and the endowments allocate more to alternative assets than is warranted by their weights in the market portfolio; their allocation to bonds falls short of the market portfolio’s weight of bonds.Our development of this new historical database on the global multi-asset market portfolio has important applications for the strategic asset allocations of practitioners. Moreover, our study might serve as a fruitful resource for future research in this field. We hope that this article will spark new applications, both theoretical and empirical.

Date: 2014
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DOI: 10.2469/faj.v70.n2.1

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