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27 February 2018 Financial Analysts Journal

Absence of Value: An Analysis of Investment Allocation Decisions by Institutional Plan Sponsors

  1. Scott D. Stewart, CFA
  2. John J. Neumann
  3. Christopher R. Knittel
  4. Jeffrey Heisler, CFA

To determine whether the investment decisions of institutional plan sponsors contribute to their asset values, this study used a dataset of 80,000 yearly observations of institutional investment product assets, accounts, and returns for 1984−2007. Results show that plan sponsors may not be acting in their stakeholders’ best interests when they make rebalancing or reallocation decisions. Investment products that receive contributions subsequently underperform products experiencing withdrawals over one, three, and five years. For investment decisions among equity, fixed-income, and balanced products, most of the underperformance can be attributed to product selection. Tests suggest that these results are not attributable to survivorship or other biases. Much like individual investors who switch mutual funds at the wrong time, institutional investors do not appear to create value from their investment decisions.

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