This paper constructs six portfolios using six risk-based asset allocation techniques and compares the performance of these portfolios with that of the market portfolio proxied by the Johannesburg All Share Index (JSE ALSI). We make use of the daily closing prices of eleven JSE sector indices starting from August 2004 to September 2015. We divide this sample period into three overlapping sub-samples representing the pre-crisis period, the crisis period, and the post-crisis period. The performance analysis is based on the Sharpe and the Sortino ratios. The covariance matrix, the most important input in the construction of these risk-based portfolios is assumed to be constant, and time varying respectively. When it is assumed to be constant our results show that during the pre-crisis period risk-based portfolios performed poorly than the market portfolio. But during the crisis and post-crisis periods we find that risk-based portfolios performed better than the market portfolio with the minimum correlation portfolio generating the highest Sharpe and Sortino ratios. More investment capital during these two sample periods is found to be mostly allocated to the property sector. However, when the covariance matrix is assumed to be time varying the pre-crisis period is used as the in-sample space while the crisis and post-crisis periods are used as the out-sample space. The forecasts of the time varying covariances in the out-sample space are obtained with a multivariate GARCH model based on a sixty rolling window forecast. Our results with forecasted covariances show that during the crisis period all risk-based portfolios performed better than the market portfolio due to their ability to protect investor’s capital during financial crisis. We find mixed results during the post-crisis period: the equally weighted, the risk parity, and the minimum correlation portfolios performed poorly while the rest of the risk –based portfolios performed better than the market portfolio with the minimum variance portfolio generating the highest Sharpe and Sortino ratios. More investment capital is found to be allocated in the property, telecommunication, consumer services, and health sectors when the forward looking approach is employed.
