The contribution of asset allocation policy to portfolio performance

It is well known that asset allocation policy is the major determinant of fund performance. We apply the technique introduced by Ibbotson and Kaplan (2000) to German and Swiss mutual fund data. Our results show that more than 80 percent of the variability in returns of a typical fund over time is explained by asset allocation policy, roughly 60 percent of the variation among funds is explained by policy, and more than 130 percent of the return level is explained, on average, by the policy return level.