Single choice9)A large proportion of investment performance is mostly a function of:Security selectionInvestment manager selectionAsset allocation

Step 1: Break Down the Problem

The question is asking about which factor plays a significant role in determining investment performance. The options provided are:

1. Security selection
2. Investment manager selection
3. Asset allocation

Step 2: Relevant Concepts

To analyze the question effectively, we should consider the importance of each option in investment performance:

• Security selection refers to the process of choosing individual securities to invest in.
• Investment manager selection involves choosing the right manager or firm to manage investments, which can impact performance.
• Asset allocation is the strategy of distributing investments across various asset categories (stocks, bonds, etc.), which is critical for risk management and overall returns.

Step 3: Analysis and Detail

• Security Selection: While selecting the right securities can lead to outperformance, research shows it's challenging to consistently beat the market through security selection alone.
• Investment Manager Selection: The skill and strategy of the investment manager can influence performance, but this is often more relevant in the context of asset allocation and strategy implementation.
• Asset Allocation: Studies, including those by financial researchers like Ibbotson and Kaplan, have indicated that asset allocation is the primary determinant of long-term investment performance, often responsible for up to 90% of the variability in portfolio returns.

Step 4: Verify and Summarize

After reviewing the roles of each option, it becomes apparent that asset allocation significantly impacts investment performance. While security and manager selection are important, their influence tends to be overshadowed by the strategic distribution of assets.

Final Answer

Asset allocation is the largest determinant of investment performance among the options provided.