Equal-weight vs. 19 Other Allocation Strategies Within and Across Asset Classes

Is equal weighting of portfolio assets easy or hard to beat within or across asset classes? In their April 2023 paper entitled “Is Naïve Asset Allocation Always Preferable?”, Thomas Conlon, John Cotter, Iason Kynigakis and Enrique Salvador employ simulations to pit equal portfolio weighting against 19 other weighting strategies (fixed strategic weights, nine variations of dynamic mean-variance optimization and nine variations of dynamic minimum variance) within or across four asset classes (stocks, bonds, commodities and real estate). They reform portfolios monthly and focus on excess returns relative to the 3-month U.S. Treasury bill yield. They consider both conventional risk-adjusted returns (Sharpe ratio) and tail risk (Value-at-Risk, or VaR). They include portfolio reformation costs of 0.5% of turnover value. Using monthly returns for various indexes as asset class proxies and monthly 3-month U.S. Treasury bill yields during January 1990 through December 2019, they find that:

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