13 August 2026, by Newsroom editorial office

Photo: AdobeStock/William W. Potter

Individuals, foundations, and investment firms alike are looking for the best investment opportunities to build or preserve wealth. Prof. Dr. Wolfgang Drobetz and his team at the Chair of Corporate Finance and Portfolio Management at the University of Hamburg Business School are conducting research on optimizing investment strategies. In their work, they examine both stock market trends and the publicly traded companies themselves.

Institutional investors, such as foundations, systematically construct their investment portfolios to achieve their investment objectives. You are exploring ways to improve this portfolio management process. What decisions are particularly important for this group of investors?

Arguably the most important decision institutional investors must make concerns the structure and style of the portfolio—what is known as strategic portfolio allocation. For example, assets can be allocated across various asset classes such as stocks, bonds, real estate, or money market funds. Personal return goals, the investment time horizon, and individual risk tolerance all play a role in this decision. Typically, the strategy is designed to span several years and is intended to help weather short-term fluctuations (“market noise”).

What is the best approach to take to achieve long-term return and risk objectives with a portfolio?

The first step is to accurately assess long-term market expectations for the individual asset classes. For foundations and other institutional investors, the central question is usually how much higher the long-term return potential of the stock market is compared to government bonds. If no reliable forecasting models are available, looking to the past can be illuminating: Over the past 100 years, for example, U.S. stocks have generated an excess return of about six percent per year compared to short-term U.S. Treasury bonds.

Based on these long-term return and risk estimates, a diversified—that is, spread across various asset classes—and robust portfolio allocation must then be determined. Optimization methods based on machine learning are now also available for this purpose.

How do you research how to construct and manage a successful portfolio?

On the one hand, we work with large historical datasets for the stock and financial markets. Using mathematical models and statistical methods, we can analyze very precisely how stocks, bonds, and other products have performed over specific time periods—including how they compare to one another. On the other hand, we collaborate with the investors themselves—some of whom are very large fund management firms and insurance companies—whom we interview about their investment strategies and with whom we share the results of our analyses.

The stock market's overall performance is driven by an extremely small number of super stocks

In a recent research project, you examined the equity asset class in detail. In doing so, you demonstrated that, historically, an extremely small group of stocks has driven returns in the U.S. stock market. What insights does this offer investors?

It has long been known that the vast majority of individual U.S. stocks underperform U.S. Treasury bonds over the long term. In our analysis, we were able to scientifically confirm that the overall performance of the stock market is driven by an extremely small number of super stocks—the so-called Big 7, which include Apple, Alphabet, and Meta, among others.

We interpret these results as evidence of the superiority of passive investing for successful portfolio construction. Stock picking—that is, the targeted purchase of individual stocks—is very risky: Anyone who tries to specifically bet on winners is highly likely to miss the mark and underperform the market. Therefore, broad diversification is essential. Only by investing in the entire market through index products can one ensure that the portfolio automatically holds the few extreme outperformers that ultimately generate the entire market return.

You placed a special focus on the publicly traded companies themselves. What did you examine?

In our latest study, we were able to show that the growth in shareholder value varies significantly across the different phases of a company’s life cycle. To this end, we analyzed data for U.S. companies from 1990 to 2024. For these years, the shareholder value created is estimated at 60 trillion U.S. dollars—and companies generated a large portion of this during the so-called maturity phase.

In this phase, companies are established and operating profitably, allowing them to focus on long-term investments. Listed companies in the start-up and decline phases, on the other hand, tended to destroy value overall. By avoiding companies in these two life cycle phases, it may be possible to construct a portfolio that delivers excess returns. Therefore, following the publication of our paper, we aim to establish a portfolio strategy that is as easy to implement and stable as possible in practice.

Will this portfolio strategy also apply to individual investors?

In our work, we focus primarily on larger portfolios, which are generally not managed by individuals. Here, the approach is often much more long-term and goal-oriented. However, the fundamental recommendations also apply to individual investors who wish to invest their money. In particular, people with little prior knowledge or who do not want to put in a great deal of effort should diversify their investments broadly and, when making individual purchases, focus on established companies.

(This content has been translated automatically.)