The Importance of Asset Allocation and Active Management for Canadian Mutual Funds

Several different factors, including asset allocation policy, active portfolio management and market movements affect the return of a mutual fund. Existing studies test the relative importance of asset allocation policy and active management in explaining the variability of performance. In this paper, we use data for the period 2000-2010 to test the factors' role in determining performance of Canadian equity funds, balanced funds and international funds. The results show that asset allocation policy has the same level of explanatory power as that of active management, with slightly difference among funds of different investment styles.