'Go-Anywhere' Funds Let You Sleep at NightHave you ever wondered what became of that student who, while you were totally focused on your major, was taking a theoretical physics course at 9:00 a.m. and then a Renaissance lit seminar an hour later? The one who partied at the French Riviera during spring break and then spent the summer doing inner city volunteer work for the gravely ill.
Don't be surprised if that kid who seemed to exist in a world without constraints is now the manager of a global asset-allocation mutual fund. Virtually every fund defines its investment turf, which is usually implied by its name or spelled out in its stated objective or investment policy. In the American vernacular, a fund is domestic, meaning it sticks with U.S. securities, or international, meaning its investments are domiciled anywhere except its home country. Alternatively, it is equity, meaning stocks plus perhaps a few percent in cash and equivalents, or it is fixed income.
Some funds state their objectives as balanced between equities and fixed-income investments. They usually do not deviate much from a pre-defined mix, in the area of 50% to 70% equities.
Others describe themselves as global, meaning they focus on foreign securities in addition to U.S. stocks. Another group subscribes to the asset-allocation philosophy, which allows them to shift between equities and fixed-income vehicles as they deem conditions warrant.
But investment objective-wise, the most independent grouping of funds is of the global asset-allocation variety. Their stated objective is freedom to invest anywhere in the world and to alter their mix of equity and fixed-income investments at will.
In essence, their mandate is to invest anywhere in any combinations of equities and fixed income securities that might meet their fancy.
Given the sudden reversals in fashions slamming investment trends in recent months, funds with such wide discretion might be worth a look.
The accompanying table displays global asset-allocation funds with TheStreet.com Ratings grades in the "B" and "C" ranges, which equate, respectively, to "buy" and "hold" recommendations. No global asset allocation fund currently rates in the "A" range.
Besides being arguably the most geographically diversified funds in addition to enjoying virtually total flexibility in their equity/fixed-income mixes, the global asset allocation funds typically provide great diversity in other ways. Many blend emerging-market investments into their international selections in addition to mixing, small-, mid- and large-cap stocks in their portfolios.
A significant percentage of funds in this category achieve their diversified investment personalities by holding shares in other funds rather than buying and selling individual stocks and bonds. That means their fees can be relatively high.
The three "buy" recommended funds in the adjoining table have achieved double-digit returns for the past 12 months, three years and five years. All the gains have exceeded corresponding gains in the total-return S&P 500 index. But only the BlackRock Global Assocation Fund (MDLOX) has been able to outperform the MSCI EAFE index for any of the periods. It edged out the international gauge by 6 basis points for the 12 months ended Nov. 30, 2007.
The fund's largest holdings are Reliance Industries (RIGD) and General Electric (GE) .
Of the 11 funds on the "hold" list, five have outpaced the S&P over the past five years, while four have beaten the gauge over the most recent three-year period. However, during the difficult 12 months ended Nov. 30, nine have left the S&P in the dust.
However, not one of the "hold" group has been able to match the MSCI EAFE during any of the recent time periods.
Considering that their performances tend to be slightly muted by their fixed-income holdings, the group's ability to generally keep pace with the S&P while maintaining relatively steady performances is certainly worthy of attention.
But there is a strong cautionary note: With their go-anywhere, do-anything investment mandates, portfolio managers wield enormous latitude and power. So let's hope that unconstrained college kid took a few finance courses before seizing the helm of a global asset allocation fund.
|Top-Rated Global Asset Allocation Funds|
|NAME, TICKER & TheStreet.com RATINGS GRADE||12-MONTH TOTAL RET'N (%)||3-YR. ANN'L RET'N (%)||5-YR. ANN'L RET'N (%)||MAX. INITIAL SALES CHARGE (%) *||TOTAL EXPENSE RATIO (%)|
|BlackRock Glb Allocation Inv A (MDLOX) B||17.85||15.18||17.72||5.25||1.17|
|Managers Fremont Global Fund (MMAFX) B-||10.37||10.80||12.12||NL||1.14|
|Russell LifePoints Eq Gr Strat A (REAAX) B-||10.35||13.75||16.13||5.75||1.81|
|Evergreen Asset Allocation A (EAAFX) C||9.63||10.11||12.65||5.75||1.37|
|Franklin Templeton Conserv Tgt A (FTCIX) C-||8.85||8.23||9.45||5.75||1.42|
|Franklin Templeton Moderate Tgt A (FMTIX) C||10.27||9.77||11.38||5.75||1.47|
|Nationwide Inv Dest Aggressive A (NDAAX) C+||8.77||12.00||14.27||5.75||0.75|
|Nationwide Inv Dest Mod Aggr A (NDMAX) C||8.48||10.81||12.55||5.75||0.75|
|Nationwide Inv Dest Moderate A (NADMX) C-||7.11||8.68||9.91||5.75||0.75|
|Natixis Moderate Divsfd A (AMDPX) C- **||9.29||7.78||N/A||5.75||1.26|
|Russell LifePoints Bal Strat A (RBLAX) C||8.15||9.99||11.42||5.75||1.68|
|Russell LifePoints Gr Strat A (RALAX) C+||9.07||11.76||13.63||5.75||1.73|
|UBS Global Allocation A (BNGLX) C-||7.41||9.89||12.86||5.50||1.13|
|USAA Cornerstone Strategy Fund (USCRX) C||8.28||9.82||11.49||NL||1.19|
|S&P 500 Total Return Index||7.72||10.09||11.62|
|MSCI EAFE Index||17.79||19.91||21.81|
|* "NL" is a no-load fund.
** Closed to new investors.
Source: TheStreet.com Ratings - Data as of 11/30/2007.