Subsequently, in a study aimed at addressing the controversy (Ibbotson & Kaplan, 2000) the authors looked at 10 years of monthly returns for 94 balanced mutual funds and 10 years of quarterly returns for 58 pension funds. The aim of the study was to answer 3 questions:

• How much of variability returns cross time is explained by asset allocation policy?
• How much of the variation in returns among funds is explained by differences in asset allocation policy?
• What portion of the return level is explained by policy return?

The results regarding the first question confirmed the original Brinson study finding that asset allocation policy explains about 90% of the period-to-period variability of a fund. 

An interesting point made by these authors was that the high R-Squared is explained by the funds’ exposure to the capital markets as a common factor. To quote these authors: “a case of a rising tide lifting all boats.”
 
Regarding the second question, they found that only about 40% of the return variation between funds is because of asset allocation, with the balance being because of other factors:

• including asset-class timing
• style within asset classes
• security selection
• fees.

The third question was more elegantly answered in a paper “The Importance of Asset Allocation” (Ibbotson, 2010) also by Roger Ibbotson. The argument he made is that the total return of a fund can be split into three parts:

• Return based on the overall market movement
• The incremental return from the asset allocation policy
• The active return, such as market timing, selection and fees

He found that about 75% of the variation in time series returns comes from general market movement. With the remaining variation, split equally between asset allocation policy and active management.

It is therefore clear that the asset allocation is not the alpha and omega that we see it as in the industry at present. The traditional view of asset allocation is not diversified enough regarding the underlying driving factors of returns.