Pssst! Looking for a global approach to a higher return?

A global allocation fund could be one solution. Their attraction: their flexibility and relatively high returns amidst a widely fluctuating market.

Research firm Morningstar says global allocation funds have been among the fastest-growing fund categories in the past several years.

Since 2008, at the outset of the financial crisis, scores of these vehicles—sometimes referred to as “go anywhere” funds—have proliferated as fund firms started adding them to their mix.

The main idea behind global allocation funds is flexibility—allowing the fund manager to invest in any asset class and not to be tied to the the traditional “box.” Often, these funds can invest not only in stocks or bonds, but also in commodities and currencies, and can use alternative strategies such as selling securities short.

In June 2013, T. Rowe Price added its weight to the category. The new T. Rowe Price Global Allocation Fund (RPGAX) is the firm’s most broadly diversified asset allocation fund, the firm says. It seeks long-term total return from investments in the U.S. and international stocks, bonds, cash, and alternative investments.

“Investors are increasingly looking beyond U.S. stocks and bonds to meet their long-term investment objectives,” said Charles Shriver, the fund’s portfolio manager. “We designed the fund to more fully benefit from investment opportunities around the world, both across asset classes and investment strategies.”

Typically, the fund will invest 60 percent of its assets in stocks, 30 percent in bonds and cash, and 10 percent in alternatives. Approximately 40 percent of total assets are earmarked for international equities and bonds across both developed and emerging markets.

In a recent report, Kevin McDevitt, Morningstar’s lead analyst following these funds, says the average gain for world allocation funds, after a disappointing 2011, was a strong 10.7 percent in 2012. Funds with the greatest equity allocation benefitted most.

The Ivy Asset Strategy Fund (WASAX) turned in one of the category’s best showings with a 19.3 percent return, after falling 7.7 percent in 2011, according to Morningstar. It was one of the category’s highest equity weightings at 79 percent of assets, versus 53.5 percent for the category average. First Eagle Global (SGENX) benefitted from a robust 75 percent position in equities and had a healthy 12.5 percent gain, Morningstar said.

Only a handful of these funds existed before the financial crisis. The granddaddy of them all is BlackRock’s  $56-billion Global Asset Allocation Fund (MDLOX),  in existence since 1989. The $28-billion Ivy Asset Strategy fund, started in 1995, is often compared with the BlackRock offering.

Both are multi-asset allocation funds with a flexible investment approach. The BlackRock fund invests in more than 700 securities across domestic and international stocks, bonds, hybrid securities, and exchange traded funds. The fund has a deep bench management team of 40 professionals.

The Ivy fund can invest from zero to 100 percent in any asset class globally.  Its portfolio consists of stocks, fixed income, gold and cash “with the goal of delivering equity-like returns with less equity market risk,” according to a recent Morningstar report. Waddell & Reed is the fund’s parent.

Both have shifted assets recently to meet changing market conditions, but their essential strategies remain intact, according to Morningstar.

Another high-profile global allocation fund and relative “old timer” is the $14 billion Thornburg Investment Income Builder Fund (TIBAX), founded in 2002.   

The Innealta Country Rotator Fund represents the new breed of fast-growing entrants in this sphere. The Innealta Country Rotator Fund has grown to $1.4 billion in assets since inception four years ago.

Jeff Montgomery, CEO of Innealta Capital Inc. in Austin, Tex., believes modern portfolio theory died with the financial crisis. He maintains the rise in global allocation funds and tactical investment management has coincided with the rise in the popularity of exchange-traded funds (ETFs).

“Investment managers looking for yield and growth don’t want to be constrained to one country, and therefore have expanded their investment universe globally,” said Montgomery. “Being limited to one country also increases risk.”

Not everyone is enthused about the category. Larry Luxenberg, a financial advisor at Lexington Avenue Capital Management, says, “These (funds) are similar to global macro hedge funds. It’s certainly desirable to invest globally and in certain investment classes, but it's best for an individual investor or advisor to set the allocation for that individual’s vehicle.”

Before investing in these funds, advisors and investors are urged to use caution and do careful research. Managing these funds can be a challenge, requiring competent, experienced management teams to keep an eye on numerous global investment trends, says Morningstar.