Morningstar Advisor - February/March 2013 - (Page 58)
Gray Matters
The Existence of Market-Timing
‘Intelligence’
By David Blanchett
Active managers have exhibited skill in making asset-class
decisions, our study shows.
Market volatility and low equity returns over
the past decade have led many investors
to seek new ways to invest. Tactical assetallocation approaches, where changes
are made to the portfolio allocation in response
to market forecasts, hold a lot of appeal for
many of these investors. The goal with a
tactical strategy is to correctly time the market,
or buy low and sell high, to achieve higher
risk-adjusted performance than what an
investor would achieve through a strategic
58 Morningstar Advisor February/March 2013
asset-allocation, or buy-and-hold, approach.
While the appeal of market timing is
strong, the ability of portfolio managers to
correctly time the market (the market-timing
“intelligence” of the portfolio manager) is
up for debate.
In this article, we will explore the ability of
portfolio managers of actively managed
balanced mutual funds to make “intelligent”
decisions with respect to the historical asset-
class exposures in the portfolio. We want to
determine whether managers are able to add
value by correctly timing portfolio decisions.
The Importance of Asset Allocation
In Brinson, Hood, and Beebower’s research
paper, “Determinants of Portfolio Performance”
(1986), perhaps the most well-known (and often
miscited) paper on asset allocation, the authors
concluded that the variance of a portfolio’s
asset allocation, or “policy” return, explained
Table of Contents for the Digital Edition of Morningstar Advisor - February/March 2013
Morningstar Advisor - February/March 2013
Contents
Contributors
Letter From the Editor
Social Media, the Old- Fashioned Way
Do You Use Active Strategies?
Youth Appeal
How to Buy the Unloved 2013
Morningstar Managers of the Year
Investments á la Carte
Investment Briefs
Approaches to Absolute-Return Investing
In Agriculture, It’s Good to Be Strong
Yes, There Are Good Active Funds
The Decoupling
Where It Could Pay to Be Active
The Active Fund That Defies Obsolescence
The Epitome of an Active Manager
Lines of Communication
The Existence of Market Timing ‘Intelligence’
A Route to Commodities that Bypasses the Futures Market
Best Positioned for Health-Care Reform
Diversified Stock Funds That Earn Their Stars
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
A Twisted Debate
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