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World Allocation Funds Dodge Trouble Spots

Forester also likes AstraZeneca (AZN), the British drug giant. The stock trades for 7.5 times next year's earnings and has a dividend yield of 5.9%.

Calamos Global Growth & Income holds an unusual mix that includes a big slice of convertible securities and foreign government bonds. The fund currently has 40% of assets in convertibles and 11% in sovereign bonds, with most of the rest in equities. Portfolio manager Nick Calamos says that the bonds and convertibles can cushion the fund during periods when stocks are falling. Calamos aims to deliver equity-like returns, while limiting losses in downturns. During the past five years, the fund has returned 4.0% annually, outdoing 62% of peers.

Recently Calamos has begun raising his equity allocation. He says that investors have become overly pessimistic about the economy. "The market is pricing in a mild recession in the current valuation of equities," he says.

Calamos concedes that many risks remain in the markets. That is why he continues to hold bonds and convertibles. Calamos typically favors growth stocks. These days he is focusing on companies that can grow, even if the economy slips into recession. A holding is Qualcomm (QCOM), which licenses patents and makes chips that are crucial for wireless phones. With demand for wireless service jumping around the globe, earnings climbed 34% in the past quarter.

He also owns Chesapeake Energy (CHK), a natural gas producer. Calamos says that the returns on capital will increase as the company exploits its growing reserves.

Loomis Sayles Global Equity and Income keeps from 30% to 70% of its assets in equities. The fund is currently near the top limit, with 66% of assets in stocks. The portfolio managers figure that bond yields are puny. They worry that rates could rise in the next several years, which would punish bond prices. "Over the next three years, equities should be the place to be," says portfolio manager Warren Koontz.

A big stock position has helped the fund excel in recent rallies. In 2010, the fund returned 21.5% and ranked as the top performer in the world allocation category. During the past five years, Loomis Sayles returned 7.4% annually, outdoing 94% of peers.

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