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Leading investment analysts Gary Brinson, Randolph Hood, and Gilbert Beebower published a landmark study (the "BHB Study") in 1986 that specifically looked at three factors that affect portfolio yields; asset allocation, market timing and security selection. In the BHB Study, actively selected stocks, bonds and cash positions of 91 large pension funds were replaced with index positions reflecting each respective asset class.

From 1973 to 1985, the quarterly returns for the BHB funds were higher than the actively managed pensions funds. Simply stated, funds of the three asset class indices performed as well or even better than the funds of stock, bond and cash equivalents specifically chosen by fund managers. The BHB Study concluded that choosing the proper mix of asset class instruments accounted for over 93% of total performance while market timing and stock and bond selection, the role of the active manager, accounted for less than 7% of fund performance.

Brinson, Brian O. Singer and Beebower updated the BHB Study in 1991 by using regression analysis to determine what the performance of 82 pension funds would have been had broad index positions of stocks, bonds and cash equivalents replaced the corresponding actively chosen asset classes of the pension funds. This study concluded that just over 91.5% of total fund performance could be attributed to asset allocation with the remaining 8.5% attributable to the timing and security picking activities of active fund mangers.

Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower, 1986, Determinants of Portfolio Performance,

Financial Analysts Journal 42(4): 39–48 (reprint, 1995, Financial Analysts Journal 51[1]: 133–38, 50th Anniversary Issue);

Gary P. Brinson, Brian D. Singer, and Gilbert L. Beebower, 1991, Determinants of Portfolio Performance II: An Update, Financial Analysts Journal 47(3):40–48

ASSET ALLOCATION IS RELEVANT

AFTER 40 YEARS INDIVIDUAL STOCK AND DEBT PICKERS STILL DEALING WITH FUTILITY

Source: Standard & Poor’s Indices Versus Active Funds Scorecard, August 20, 2009. Index used for comparison: US Large Cap - S&P 500 Index; US Mid Cap - S&P MidCap 400 Index; US Small Cap - S&P SmallCap 600 Index; Global Funds - S&P Global 1200 Index; International - S&P 700 Index; International Small -S&P Developed ex. US SmallCap Index; Emerging Markets - S&P IFCI Composite. Data for the SPIVA study is from the CRSP Survivor-Bias-Free US Mutual Fund Database.

Source: Standard & Poor’s Indices Versus Active Funds Scorecard, August 20, 2009. Index used for comparison: Government Long - Barclays Capital US Long Government Index; Government Intermediate - Barclays Capital US Intermediate Government Index; Government Short - Barclays Capital US 1-3 Year Goverment Index; Investment Grade Long - Barclays Capital US Long Government/Credit; Investment Grade Intermediate - Barclays Capital US Intermediate Government/Credit; Investment Grade Short - Barclays Capital US 1-3 Year Government/Credit; National Muni - S&P National Municipal Bond Index; CA Muni - S&P California Municipal Bond Index. Data for the SPIVA study is from the CRSP Survivor-Bias-Free US Mutual Fund Database. Barclays Capital data, formerly Lehman Brothers, provided by Barclays Bank PLC.

WHAT IF YOU CHASED THE TOP PERFORMING FUNDS