Strategic Asset Allocation in Practice: Using Vanguard Funds to Clone GMO’s Benchmark‐Free Allocation Fund

8 Pages Posted: 3 Nov 2010 Last revised: 9 Nov 2010

See all articles by Edward Tower

Edward Tower

Duke University - Department of Economics; Chulalongkorn University-Economics Department

Date Written: October 1, 2010

Abstract

GMO offers a mutual fund which is free to change its composition of assets in accordance with expected risks and returns. It is called the GMO Benchmark Free Allocation Fund III, ticker: GBMFX. This study asks whether one could obtain the same performance by adjusting one’s holdings of Vanguard funds. We find that an investor was unable to reach the return of the GMO fund with either a continuously rebalanced portfolio of Vanguard funds or with a varying weight portfolio that matched the style of the GMO fund throughout the period. However, in the second half of the period since inception through June 2010, GBMFX had roughly the same return as the baskets of Vanguard funds.

Suggested Citation

Tower, Edward, Strategic Asset Allocation in Practice: Using Vanguard Funds to Clone GMO’s Benchmark‐Free Allocation Fund (October 1, 2010). Available at SSRN: https://ssrn.com/abstract=1701950 or http://dx.doi.org/10.2139/ssrn.1701950

Edward Tower (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1818 (Phone)
919-684-8974 (Fax)

Chulalongkorn University-Economics Department

Bangkok
Thailand

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