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Are Asset Allocation Funds a Good Deal?

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When could it make sense for an advisor to use an asset allocation fund for a client?

Perhaps when advisors want to achieve lower risk through diversification for investors with smaller portfolios. One fund family that has a group of asset allocation funds, MFS Investment Management, celebrated the three-year anniversary for the funds in June, and two of them, the MFS Aggressive Growth Allocation Fund (MAAGX), and MFS Growth Allocation Fund (MAGWX), have achieved Standard & Poor’s five-star ranking for the three years ending June 30th. The MFS Moderate Allocation Fund (MAMAX) received four stars, and MFS Conservative Allocation Fund (MACFX) got three stars for the three-year period.

“Investors woke up to the benefits of diversification in the down market of 2000-2002, and that’s why we’ve seen so much interest in these types of portfolios,” says Joseph Flaherty, the portfolio manager at MFS who developed and manages these funds to provide investors with “easy access to broadly diversified, professionally managed asset allocation portfolios.” Some advisors use the funds in a “core-satellite approach” placing the bulk of a client’s portfolio in the asset allocation fund that matches their risk profile. Advisors add value “by layering on other asset classes or funds that they may favor,” according to Flaherty. “It allows them to express things tactically and it allows the bulk of their portfolio to have that rebalancing process.”