A Benchmark for Efficient Asset Allocation

Northern Trust

Peter Mladina

Research

4 Pages

Northern Trust examines whether the global market portfolio offers a benchmark for efficient asset allocation. Using 20 years of data, the paper finds most world allocation funds underperformed this benchmark on a Sharpe ratio basis, reinforcing the case for cost efficient diversification and income exposure.

Key Takeaways

Global Portfolio Edge: 68% of world allocation funds delivered lower Sharpe ratios than the global market portfolio benchmark across their respective performance histories.
Bond Heavy Reality: As of May 2017, the equilibrium global portfolio consisted of 48% equities and 52% bonds, challenging the traditional equity heavy allocation mindset.
Active Cost Drag: The average fund expense ratio was 1.34%, and 83% of funds underperformed the benchmark after accounting for net returns.
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