Evaluating the Performance of World Allocation Funds

Abstract

This study analyzes the risk-adjusted performance of world allocation mutual funds, from January 1994 to March 2021 by comparing them to various benchmark indices. We found that world allocation mutual funds were highly correlated with benchmark indices. They also had lower absolute- and risk-adjusted performance compared to benchmark indices. We also computed the six-factor alpha (Carhart four factors plus excess returns of FTSE Total World Ex US and Barclays Aggregate Bond Index) during this time and found that world allocation funds had significantly negative alpha. All these results indicate that world allocation funds would have been better off with passively managed index funds.