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Strategic Asset Allocation: Determining the Optimal Portfolio with Ten Asset Classes

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Strategic Asset Allocation: Determining the Optimal Portfolio with Ten Asset Classes

Niels Bekkers Mars The Netherlands

Ronald Q. Doeswijk* Robeco The Netherlands

Trevin W. Lam Rabobank The Netherlands October 2009

Abstract
This study explores which asset classes add value to a traditional portfolio of stocks, bonds and cash. Next, we determine the optimal weights of all asset classes in the optimal portfolio. This study adds to the literature by distinguishing ten different investment categories simultaneously in a mean-variance analysis as well as a market portfolio approach. We also demonstrate how to combine these two methods. Our results suggest that real estate, commodities and high yield add most value to the traditional asset mix. A study with such a broad coverage of asset classes has not been conducted before, not in the context of determining capital market expectations and performing a mean-variance analysis, neither in assessing the global market portfolio. JEL classification: G11, G12 Key words: strategic asset allocation, capital market expectations, mean-variance analysis, optimal portfolio, global market portfolio. This study has benefited from the support and practical comments provided by Jeroen Beimer, Léon Cornelissen, Lex Hoogduin, Menno Meekel, Léon Muller, Laurens Swinkels and Pim van Vliet. Special thanks go to Jeroen Blokland and Rolf Hermans for many extensive and valuable discussions. We thank Peter Hobbs for providing the detailed segmentation of the global real estate market that supplemented his research paper. Last, but not least, we thank Frank de Jong for his constructive comments and useful suggestions during this study. * Corresponding author, email: r.doeswijk@robeco.com, telephone: +31 10 2242855.

Electronic copy available at: http://ssrn.com/abstract=1368689

1 Introduction
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