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.