But Are They a Good Deal?

“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.”

“For high-net-worth investors,” advisors are “giving them that type of advice on a regular basis, but they don’t necessarily have the time to spend with each and every investor and for some of their smaller clients–they’ll direct them to a solution like this,” Flaherty says. The funds carry a maximum load of 5.75% but MFS waives the load for registered investment advisors. The portfolios are invested in shares of MFS institutional funds and are rebalanced daily with cash inflows, and quarterly or during extreme market conditions if necessary. “A lot of the work we did in constructing these portfolios was about getting that risk profile right, and a lot of what we do day-to-day is about maintaining that risk profile. It’s really all about trying to meet client expectations.”

Flaherty concludes that advisors like asset allocation funds for their “multiple layers of efficient diversification, and the disciplined rebalancing process.” He says advisors use them as “a sophisticated product for investors that don’t have time or the money to pay for that level of sophistication, so it’s easy for them to direct some of their smaller clients into a product like this.”–Kathleen M. McBride