The Global Case for Strategic Asset Allocation and An Examination of Home Bias

Vanguard

Brian Scott

Research

20 Pages

Vanguard examines how strategic asset allocation, active management, and home country bias shape portfolio outcomes across major global markets. The paper argues that policy allocation drives most portfolio volatility, while investors still heavily overweight domestic equities despite diversification benefits and historically uneven active management results.

Key Takeaways

Asset Allocation Dominance: Policy allocation explained 91.1% of U.S. balanced fund return variability from 1990 to 2015, reinforcing diversification’s role in long term portfolio risk.
Active Management Odds: Only 4% of U.S. actively managed balanced funds generated statistically significant alpha, while average funds underperformed policy benchmarks by 1.48 points annually.
Home Bias Persistence: Canadian equities represented 3.4% of global market capitalization in 2014, yet Canadian investors allocated 59% of equity holdings domestically.
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