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Is Asset Allocation still king?

Different studies suggested that more than 91.5% of a portfolio’s return is attributable to its mix of asset classes. Following the results of those studies, individual stock selection and market timing accounted for less than 7% of a diversified portfolio’s return.

The first study was driven in 1986 by Gary P. Brinson, CFA, Randolph Hood, and Gilbert L. Beebower (known collectively as BHB). They examined the quarterly returns of 91 large U.S. pension funds over the 1974 to 1983 period, comparing the returns to those of a hypothetical fund holding the same average asset allocation in indexed investments. They concluded that asset allocation explained 93.6% of the variation in a portfolio’s quarterly returns. They updated the figures in 1991 after the examination of return.

Is that the end of the game?

Roger G. Ibbotson made this study popular through marketing materials for the Mutual funds support (through Morningstar) and with Paul D. Kaplan they discoverd that only about 40% of the return variation between funds is due to asset allocation, with the balance due to other factors, including asset-class, timing, style within asset classes, security selection, and fees. And because the average of all investors is the market itself, with good managers and bad ones cancelling each other out, Ibbotson and Kaplan concluded (as BHB implied) that asset allocation ultimately accounts for 100% of the absolute level of returns.


  1. Asset allocation is the MOST important decision an investor makes

  2. Asset allocation determines about 91,5% of the return variation between portfolios

  3. This study has been repeated regularly by different researchers, with similar results


Importance of Asset Allocation Based on academic research conducted by Brinson, Beebower and Singer (Financial Analysts Journal,1986 and 1991). Asset Allocation 91% Security Selection 5% Market Timing 2% Other Factors


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