So-called “go-anywhere” funds are the antithesis of Morningstar’s style-boxes, meant to free managers from constraints imposed by geographical or asset-class restrictions on investment mandates. In a volatile market especially, flexibility in a search for alpha resonated with the investing public, and these funds, also known as “world allocation” funds, were hailed as a significant innovation in the industry’s suite of products.
So how are they doing? Not well, according to The Wall Street Journal.
“World allocation” funds—portfolios that mix global stocks, bonds, currencies and alternative assets—have lost an average 6% this year through Dec. 16, according to fund tracker Morningstar,” the paper writes. “That compares to a 3% gain for the Dow Jones Industrial Average and 8% increase for the Barclays Capital US Aggregate Bond index.”
But in spite of the overall poor performance, the funds remain popular, the Journal notes, with investors pouring $16 billion into world-allocation funds this year through November, after adding an additional $23 billion in 2010.
“Fund companies have responded by firing off new products: Ten funds were added to the category this year, according to Morningstar, following 26 new offerings the year before. There are now about 90 world-allocation funds with $296 billion in assets.”
Analysts interviewed by the paper said financial advisors have been recommending the funds as expressly for their flexibility as a way to combat market volatility. And although many of these funds have asset-allocation guidelines prohibiting them from taking too big a bet on one asset class or country, experts say a growing number have more flexibility when compared to other funds to move into and out of sectors.
“That freedom, of course, can be a double-edged sword, if those moves mean they lose the benefits of broad exposure,” the paper writes. “Plus, unlike managers responsible for knowing a specific sector inside and out, these portfolio chiefs must be experts in a wide variety of assets and economic trends.”