World Allocation Funds Dodge Trouble Spots
NEW YORK (TheStreet) -- Struggling to protect their assets, investors have been turning to world allocation funds. The funds have the flexibility to dodge trouble spots and invest in promising stocks and bonds around the world. During the past year, investors have poured $24 billion into world allocation funds, according to Morningstar. That was a striking showing at a time when many stock funds suffered big outflows. Steady performance has been attracting the inflows. During the past five years, world allocation funds returned 3% annually, while the S&P 500 dipped into the red.
Some of the most popular world allocation funds make sudden tactical moves, emphasizing emerging markets one year and U.S. bonds the next. But many funds in the category shift only slowly. The aim is to deliver steady results and not necessarily call every market move. Among the strongest performers in the steady group are Calamos Global Growth & Income (CVLOX), Forester Discovery (INTLX) and Loomis Sayles Global Equity and Income (LGMAX). These funds have all used unusual strategies to cope with difficult markets.
Among the most cautious choices lately has been Forester Discovery. Portfolio manager Tom Forester has the flexibility to put all his assets in stocks, but these days he has 48% of the fund in cash. Forester is trying to limit risk at a time when banks face enormous problems in the U.S. and Europe. He worries that problems in the developed world will harm the booming markets of the emerging economies. "We would hate to get all the way into the markets, and then have our shareholders lose 40%," he says.
In recent years, the cautious approach has helped the fund weather downturns. During the collapse of 2008, Forester returned 7.7%, outdoing his average competitor by 34 percentage points. For the past five years, the fund has returned 5.6% annually, topping 80% of peers.For protection, Forester is currently focusing on rock-solid blue chips that sell at modest prices. A holding is Royal Dutch Shell (RDS.A), the oil multinational. Forester says that the company is a steady grower. The stock pays a dividend of 5.2% and sells for a 6.7 times next year's earnings.
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