) -- At a time when investors have been making withdrawals from stock funds, cash has been pouring into top-performing world-allocation funds.

Ivy Asset Strategy

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BlackRock Global Allocation

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each have attracted more than $5 billion in new investments this year, according to Morningstar.

Holding a mix of stocks and bonds, the funds gained attention by avoiding the worst losses in market downturns and delivering strong long-term results. During the past five years, Ivy Asset has returned 14% annually, outdoing the

S&P 500 Index

by 14 percentage points and surpassing 95% of its world-allocation peers. In the same period, BlackRock has returned 8.1%.

The results are intriguing. But before you invest, consider the risks. Both funds place big bets, emphasizing government bonds one year and emerging market stocks the next. That aggressive approach is different from the strategy followed by classic balanced funds, which always keep about 60% of assets in stocks and 40% in high-quality bonds.

Plenty of financial advisers frown on the idea of rapidly shifting allocations. All too often investors buy and sell at the worst times, advisers say. But, most often, BlackRock and Ivy have proved to be deft traders. By putting some assets into one of these allocation funds, you may be able to diversify your portfolio and possibly reduce risk.

Of the two funds, Ivy Asset is the more aggressive choice. The fund can invest in almost anything, including gold, currencies, and stocks and bonds from around the world. When markets look expensive, the managers can shift away from equities entirely or sell stocks short, betting that prices will fall. In late 2008, the Ivy managers dumped stocks, putting 45% of assets in cash. The move helped the fund outperform the S&P 500 by 11 percentage points for the year.

Fixed-income holdings caused the fund to lag behind during this year's ferocious stock-market rally, but manager Ryan Caldwell makes no apologies for the caution. "Our first priority is capital preservation," he says.

Worried that stock prices were excessive, the fund emphasized fixed income early this year. By March, Ivy had only 25% of assets in equities, with much of the rest in gold, corporate bonds and cash.

Now that many corporate bonds have rallied, Ivy is switching back to stocks. The fund has 30% of assets in U.S. equities. Caldwell figures that the price-to-earnings multiples of stocks haven't changed much lately, even though the earnings outlook is improving. He says the S&P 500 now sells at a price-to-earnings ratio of 15, based on 2010 earnings. That's a reasonable valuation, Caldwell says.

Ivy has placed a big bet on China, putting 25% of assets in the country. Caldwell says Chinese stocks are modestly priced considering their rapid earnings growth. A favorite holding is

China Life

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. "People in China are looking to save, and they are turning more to life insurance," Caldwell says.

He also likes casino operator

Wynn Resorts

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. While the company is based in Las Vegas, much of the growth is coming from an operation in Macau that attracts eager Chinese gamblers.

Like Ivy, BlackRock makes daring moves. But BlackRock tends to stay more broadly diversified, owning hundreds of stocks and normally holding a sizable fixed-income stake. In 2006, BlackRock scored gains with big holdings in Asian stocks. Last year, the managers avoided financial shares and shorted stocks, moves that enabled the fund to beat 84% of its competitors for the year.

Worried that the current economic expansion will remain sluggish in the developed world, the fund has 5% of its assets in gold and gold-related stocks. Those will hold their value if the dollar sinks. The fund is overweighting fast-growing emerging markets, such as Brazil. BlackRock has 30% of assets in U.S. stocks, focusing on solid multinationals with reliable cash flows. Holdings include


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Invests seeking a cautious allocation choice might consider

Sierra Core Retirement

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, which began operating two years ago. The fund ranked among the top performers in 2008, losing 4% and outperforming the S&P 500 by 33 percentage points. Sierra invests in a portfolio of mutual funds. To select investments, the managers track hundreds of funds, including a range of foreign and U.S. stock and bond portfolios. The managers buy those funds that are showing upward momentum and seem undervalued. Convinced that stocks were expensive, the fund had only 8% of assets in equities at the end of 2008.

When stocks began to rise in March, more low-priced funds began showing upward momentum. So Sierra started buying and had 42% of assets in equities by the end of the month.

To protect shareholders from losses, the fund sells positions as soon as they drop by preset amounts. When a high-yield bond fund drops 2% from its highest price, the managers must automatically sell. "We want to avoid losing more than 4% in any quarter," manager David Wright says. "Our shareholders expect us to keep them out of trouble."

Worried that stocks are becoming expensive, the managers have only 13% of assets in equities. Big fixed-income holdings include

John Hancock II Floating Rate

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Fidelity Floating Rate High Income

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. Those funds own bank loans, which have been rallying lately and still deliver rich yields.

Stan Luxenberg is a freelance writer who specializes in mutual funds and investing. He was formerly executive editor of Individual Investor magazine.