The Multiple Sides of Multi-Cap Funds

Portfolio rebalancing, like all things healthy and good, is usually a drag. And in a volatile market, determining the right investment mix can also be intimidating and frustrating.

Enter multi-cap growth and value funds -- mutual funds that ask investors to trust rather than decide.

Managers of multi-cap funds aren't required to stick with small-, mid- or large-cap stocks to find value or growth, but are allowed to go anywhere they see returns. In a multi-cap core fund, managers can choose to home in on value or growth, across the spectrum of capitalization.

"If you're new to investing and don't know if you should be in small- or large-cap companies, or if you don't know if you think the smart money is going to value or growth, you can let the pros determine where your asset allocation should be more or less heavily weighted," says Tom Roseen, senior research analyst at Lipper.

This flexibility in the fund's investing strategy can allow for big returns. But since the overall direction is based primarily on the fund manager's impulses, it can also allow for big risks.

Multi-Caps Multiply

"Multi-cap funds, over last year, have gained a great deal of interest, in terms of fund flows," Roseen says.

With the exception of one month, December 2005, flows into multi-cap funds have been positive over the last year, whereas flows have been choppy at best for large-, mid- and small-cap funds over the same period of time.

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