- [Jan 15, 2010: WSJ - Despite Stellar 2009, Only 3% of Stock Mutual Funds are Positive Since 2008]
- [Feb 5, 2009: Mutual Funds Have Tough Decade]
- [Nov 24, 2009: Bloomberg - Investors Rushing into Alternative Mutual Funds]
- [Aug 4, 2009: WSJ - Mutual Funds Try "Hedge" Approach in Effort to Trim Stock Losses]
- [Apr 10, 2009: More Stock Mutual Funds Declare Cash is King]
- [Nov 12, 2009: WSJ - More Mutual Funds Attempt to "Time" the Market]
While the Morningstar "style box" still captures the hearts and minds of most investors (and their financial planners) - the 'go anywhere' approach is starting to attract those who are paying attention.
Via CBS Marketwatch:
- Sometimes it pays to be in the right place at the right time, as the managers of the Osterweis Fund (OSTFX) can attest. As the stock market tanked in late 2008 and investors watched their losses pile up, Osterweis Fund saw a dramatic increase in new money. The reason: while the fund invests primarily in stocks, its managers are free to hold cash and even some short-term bonds if they think it's appropriate.
- That's exactly what happened in the fourth quarter of 2008. As the market fell, Osterweis Fund's portfolio held 50% of its assets in cash and short-term bonds. The fund lost 29% that year -- nine percentage points better than the Standard & Poor's 500-stock index -- and management's only regret is not being quicker about leaving stocks. (geez if -29% attracted a 'dramatic' amount of money I wonder what my flat to small positive return would have done)
- Osterweis saw $67 million of net inflows in the fourth quarter of 2008, and $399 million in 2009. The pace of flows has since slowed, but the $1 billion fund still saw $88 million in inflows in the first quarter this year. (allright, I'm officially jealous)
- Osterweis falls into the stock fund category, but its tactical approach to leaving stocks if necessary distinguishes from many of its peers. It's a strategy that often preserves capital -- and one that seems to be increasingly popular with investors still reeling from heavy losses.
- The idea of giving fund mangers total freedom is catching on with investors. A small but growing category known as global tactical asset allocation funds are increasingly popular, garnering $20 billion of net inflows since the start of the fourth quarter of 2008, according to Strategic Insight.
- "Investors have been drawn to these funds in reaction to the financial crisis," said Loren Fox, senior research analyst at Strategic Insight. "Managing funds in an unconstrained or tactical manner can, theoretically, provide downside protection and some sort of absolute return during further episodes of extreme market volatility -- goals may appeal to more risk-averse investors."
- "Some investors like the fact that these funds give their portfolio managers greater flexibility than funds designed to plugged into style boxes -- it can allow the managers to be more nimble," added Fox.
You may ask why the style boxes dominate? Mostly because financial planners wants to make the decisions on how to invest their clients money. If you are a small cap value fund, then you must stay as one to get their dinero..
- That flexibility is often absent in other mutual funds, in part because many managers run their funds for institutional clients, whether large investors or financial advisers. These clients typically allocate money to a manager based on a certain strategy -- U.S. large-cap, for instance -- and any reallocation is made by the client, not the manager.
- But individual investors can suffer under this approach because they don't have such rigid allocations and rely on their managers for both achieving gains and minimizing losses. As such, it's likely that flexible funds' popularity isn't going to wane any time soon -- Fox noted that several funds of this type are being primed for launch. (no reporter called me for this story... I am dabbing my tears)
Some of these figures are staggering! $60 Billion in just these 2 funds.
- Among funds with a go-anywhere, tactical approach, two of the largest are BlackRock Global Allocation Fund (MALOX) with $40 billion in assets, and the $20 billion Ivy Asset Strategy Fund (WASAX). Recent net inflows into these funds attest to the popularity of their approach. In the two years through April 30, Ivy Asset Strategy saw net inflows of $10.3 billion, second only to the $80 billion Vanguard Total Stock Market Index Fund.
- The funds' ability to hold stocks, bonds, cash or even alternatives meant many of them outperformed the market in 2008 -- Ivy Asset Strategy was down 25.9% and BlackRock Global Allocation lost 20.4%.