What Type of Asset Allocation Strategy Should An Investor Follow?

Old_Skeet

The article linked below discusses six types of asset allocation strategies that an investor can follow. Perhaps, you will find yourself in one (or more than one) of these strategies.

http://www.investopedia.com/articles/04/031704.asp

I own a good number of hybrid type funds (21) with a good number of them employing different allocation strategies so as the market changes a good number of these hybrid funds can adapt to the forever changing markets.

Even with the good number of hybrid funds that my portfolio has it is out performing it's bogey the Lipper Balanced Index by about 5% year-to-date. And, form a performace review it's due, in part, to the more active hybrid funds that can actively engage the markets. Currently, the three better performing hybrid funds are found in my hybrid income sleeve and are APIUX, PMAIX and FISCX plus a few others in other sleeves that are also doing well. On my buy list to add is AZNAX. Then add the performance from the growth area of the portfolio (where I tend to be active and govern) and the portfolio as a whole betters the performance of the Lipper Balanced Index. The growth area is where special investment positions are found along with most specialty type funds. The three better performing funds in the growth area year-to-date are NEWFX (specialty sleeve), SPECX (large/mid cap sleeve) and ANWPX (global growth sleeve). During the third and fourth quarters of last year it was the small/mid cap sleeve that lead the growth area. Currently, leadership is spread among three sleeves.

And ... so-it-goes.

Old_Skeet

hank

Thanks OldSkeet.

Good article - but even with all the different types of allocation strategies, I'm afraid I don't fit any very well. I think this just proves that developing an allocation model is a very personal thing. That said - It's pretty widely accepted that allocation is one of the most important ingredients in determining investment results.

I'll try!

75% of my holdings are considered "core" and probably nearest to their "strategic" model. I haven't set % expectations for each component (as they seem to imply), but instead have included "off-setting" (non-correlated) investments that I believe will grow nicely over time, but (due to their diversity) without sharp "ups" and "downs." Generally I don't rebalance these - but will if an area exceeds certain pre-set perameters.

The remaining 25% constitutes my "flexible" allocation, which allows for more flexibility in how much exposure I desire to have to equities at any given time and also to speculate if I think there's an undervalued area. I suppose this 25% portion comes closest to their "tactical" allocation approach.

(Sometimes the "core" has been at 80% and the "flexible" at 20%. Varies a bit for various reasons.)

Good food for thought.

Regards

DavidV

@Old_Skeet How do you distinguish hybrid funds from balanced funds? As far I understand the difference is the level of flexibility to change asset allocation based on the market conditions. Usual MF listings do not separate hybrid funds into a separate group. Can you please provide a link to the list of hybrid funds if such exists.

Old_Skeet

Hi @DavidV,

Thank you for the question.

Generally any mutual fund that is comprised of more than one asset class is known as a hybrid fund. There are several types of hybid funds which include balanced funds, asset allocation funds, convertibles, target date funds, fund of funds, world allocation funds, tactical allocation, etc.

I have linked an article below that provides more detail.

https://www.thebalance.com/what-are-hybrid-funds-2466758

Old_Skeet

Hi again @DavidV,

Sorry I missed the part of your question about a list of hybrid funds. Morningstar does a good job of their coverage under the heading of allocaton funds. I am providing a link below. Click on the hybrid fund type you wish to view and then the time period and this will sort them by performace or you may sort by ticker symbol.

http://news.morningstar.com/fund-category-returns/

BenWP

@DavidV: I wonder about the differences among MFs that mix up assets. Every fund is a hybrid by at least one of the definitions offered in above links because every fund I know of holds cash and either stocks or bonds, and many "equity" funds have "other" instruments along with cash. The tough funds to figure out, for me, are the "go anywhere" variety, especially if the fund has a global mandate and true freedom to move in and out of assets and markets.

DavidV

@Old_Skeet Thank you for your answers. I was under impression that you could identify some balanced/hybrid funds that change asset allocation based on market conditions as opposed to the funds that have more or less fixed ratio of stocks and bonds. And I was asking for the list of such funds with flexible portfolio allocation.

Old_Skeet

Hi @DavidV,

David, the best thing to do is pick out a couple of funds that interest you and then pull up and read their fund fact sheets. To do this in google ... enter and search ... BAICX Fund Fact Sheet. You can also do some research through Morningstar Xray ... Just enter the tickers and view. Then click on the ticker symbol to view the Morningstar fund report.

http://portfolio.morningstar.com/RtPort/Free/InstantXRayDEntry.aspx?dt=0.7055475

Here are some hybrid funds, noted below, that I own that are know to throttle and adjust their allocations and holdings from time-to-time based upon how their managers are reading the markets. In addition, some of these hold a wide spectrum of assets from cash, stocks, bonds, convertibles, preferreds, derivaties, options, other funds and etfs, business development companies, MLP's, reits, etc. To find out how active they are you might wish to check their turnover ratio ... some more so than others. In addition, a good number of these kick off a good income stream and a good part of the reason I own them.

From my income area ... APIUX, BACIX, CTFAX, DIFAX, FKINX, ISFAX & PMAIX

From my growth & income area ... ABALX, AMECX, HWAIX & LABFX. Even ABALX adjust its equtiy/bond allocation form time-to-time.

From my growth & income area ... world allocation ... CAIBX, TEQAX & TIBAX (TEQIX seeks global deep discount & value plays).

A few that I like but don't currently own ... AZNAX, GBLAX, SFAAX and AMJVX. AZNAX is considered a high distribution fund with a distribution of 8.75 cents per share monthly. SFAAX is a balanced index fund that adjust its stock and bond allocation based upon how the mangers are reading the markets. AMJVX is a multi asset allocation type income fund. GBLAX is a global balanced allocation fund.

I'm sure there are others. Zacks would be a good place to start in the search.

https://www.zacks.com/stock/news/244155/3-top-balanced-mutual-funds-for-2017

Part of the enjoyment of investing, for me, is the continued search for mutual funds that interest me. With this, I have discovered some funds that have some interesting strategies. The key though ... Do they work?

Enjoy your search.

Skeet

Ted

@DavidV: Here is U.S. New & World Report ranking of the various types of balanced funds.
Regards,
Ted
http://money.usnews.com/funds/mutual-funds/balanced

msf

There was a time when Lipper and/or Morningstar drew a distinction between statically balanced funds (e.g. Wellington's (VWELX) traditional 60/40 and Wellesley's (VWINX) 40/60 mix) and funds that said they'd shift allocations within some specified range depending upon market conditions.

But they no longer draw that distinction. Maybe that's because there's always going to be a little drift even in the static allocation funds, or maybe because even these funds still do a little bit of tinkering (e.g. Wellington is currently at 70/30).

To the extent that this is still a distinction with a difference, you might try searching for balanced fund lists from a few years ago, before the "majors" dropped it as a separate category.

FWIW, here's a Lipper paper on its categories. It's from late 2015 and still shows a separate balanced fund category distinct from its mixed asset target allocation moderate (40% to 60% stock) and its mixed asset target allocation growth (60% to 80%) categories.

DavidV

@msf We still have in some places rather confusing and probably outdated definitions of hybrid funds. For example, Investopedia divides hybrid funds on balanced and asset allocation, depending on managers' flexibility to adjust the allocation.
http://www.investopedia.com/terms/h/hybridfund.asp