Go Anywhere Funds Stand and Deliver In Current Market Mayhem

Considering the latest bout of violent market fluctuations, mutual fund investors may be interested to learn that the so-called “go-anywhere” funds have been weathering the storm more successfully than the S&P 500, along with other alternative market gauges.

Investment News reports that from the start of July through August 9, the world allocation category declined by 5.66%-- not exactly outstanding progress; however, factor in the S&P 500, widely regarded as the single best assessment of the large cap U.S. equities market, down 11.06% according to Morningstar. So far in 2011, go-anywhere funds have been down 2.82%, while the S&P has lost 5.7% compared to last year, when the funds rose 10.58%.

“We know we’re not going to get the full upside,” said Stephen Baum, president of Strategic Wealth Planning, which has $75 million under management at his firm.

Interestingly, tough times have prompted new entries into this category. As of this year, Investment News reports that 30 world allocation portfolios entered the market.

Recent launches of the funds appear to be focusing on a tactical management approach according to Michael Herbst, associate director of fund analysis at Morningstar.

Trouble is, finding both the expertise across several asset classes along with the ability to regularly measure the markets is uncommon.

Dennis Strattman, manager of the BlackRock Global Allocation Fund (MALOX) expressed to Investment News last month his concern that some newer funds lacked the resources to manage global allocation portfolios, believing some early gains could be attributed to beginners luck.

BlackRock has been a “long-standing stable team of managers who won’t get too tactical and won’t get too concentrated,” Herbst said.

Go-anywhere or “world allocation” funds, as Morningstar Inc. classifies them, are characterized by their ability to maneuver through various, seemingly profitable sectors of the market, spread across the globe and numerous asset classes, such as stocks, bonds and commodities.

“This is one of those categories where the range of strategies is so wide, people think they have one thing, but actually have another, Herbst said, while suggesting advisers be abundantly aware of their clients’ holdings.

And advisers rely on managers’ skills in order to make reasonable allocation decisions.

“We’re depending on the manager to change allocations as conditions change,” Robert Kresek, managing partner at Founders Financial Network LLC, which controls nearly $600 million. He explained that fund managers have the ability to move between asset classes more effectively and efficiently.

Many independent advisors are taking a “global allocation approach” these days and using mutual funds that participate in the upside but that shelter the downside as well.

This includes his Ivy Asset Strategy Fund that isn’t shy about making bold moves to cut risk.

Ivy’s next move, according to Ryan Caldwell, one of the portfolio managers, will be propelled by “interest rates going from severely negative [in real terms, back] to normal.”

Herbst believes the tactical approach is exemplified by The Ivy Fund’s pursuits; he expressed that their 20-year strategy is resulting in dramatic market moves.

In addition, chief investment officer at Research Affiliates LLC and sub-advisor to two PIMCO All Asset funds, Jason Hsu, stated that “we’ve very equity-light” at this time, given the increased probability of a double-dip due to the debt crisis.

Research Affiliates further anticipates emerging markets to grow at steady rates and far faster than developed nations, therefore they intend to buy into those markets. The firm foresees longer-duration bonds to benefit from continued slow economic growth.

 

Editor’s note: In a shameless pitch for a couple of our premium subscription services, we’ll point out that our FlexPro Portfolio is a “go anywhere” portfolio that allows you to utilize the approach highlighted in the article and yet stay in control your investment funds. According to our records, the FlexPro has outperformed the fund averages mentioned above. In addition, all three of our Daily Decision Models continue to sport gains on the year with the Aggressive model currently up +17.8% ytd (compare to S&P 500: -5.16% through 8/16/11).

 

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Source: Investment News