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Morningstar: Are basic allocation strategies still relevant?

New research report titled ‘Multi-Asset Investing: A Difficult Sport’

Asset allocation dividing an investment portfolio among different asset categories.


Morningstar has questioned the long-standing asset allocation strategies and benchmarking used by multi-asset investors in a new report.

Researchers at the firm noted in the report titled ‘Multi-Asset Investing: A Difficult Sport’ that many multi-asset funds have struggled to beat their benchmarks in recent times.

They noted the average ‘moderate’ global allocation Morningstar category fund trailed the euro moderate global target allocation index by 2.19% annualised over the past 10 years.

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The lure of the balanced portfolio has been its ability to limit losses in challenging stock markets through bonds’ negative correlation, the report noted. But in 2022, both stocks and bonds lost ground.

This led some to suggest the 60% equities, 40% bonds portfolio is past its due date, Morningstar said. The stock/bond correlation changes through time and, besides correlations, valuations matter. At the start of 2024, the bond market has been repriced and is now offering some of the highest yields seen for a long time.

Thomas De fauw, senior manager research analyst, and author of the report, said: “Strategic asset allocation is the main driver of a portfolio’s return and explains a great deal of the excess performance versus the benchmark. Looking at the European multi-asset universe we see a broad range of allocations in each of our categories.

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“But benchmarking a multi-asset strategy differs substantively from a strategy focused on a single asset class as the many dimensions of multi-asset strategies complicate the analysis. Moreover, for objectives-oriented funds, such as multi-asset income or environmental, social, and governance-focused funds, there’s a specific investment outcome to consider.

“All the work that goes into achieving those goals is not always captured through benchmark-relative performance, nor is it always clear which benchmark to choose,” he added.

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