Can Allocation Strategies Create Superior Alpha?

This article evaluates the performance of four types of allocation funds (aggressive, cautious, flexible, and moderate) and compares them to that of US stocks. The findings indicate that none of the allocation strategies outperformed US stocks on average. Both aggressive and flexible allocation methods generated negative alpha and portfolio managers failed to meet the required return for the portfolio. The analysis also revealed that portfolio managers lacked superior security selection skills across all allocation methods and that none of the allocation strategies demonstrated any notable market timing abilities. Overall, the study suggests that allocation strategies may not be effective in generating higher returns than investing in US stocks alone.