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Asset Allocation Funds Pitch Hard Sell Flex Funds Have Appeal Amid Turbulent Market Conditions

New York Times

Expect a continuing barrage of sales pitches from asset allocation funds in coming months.

Aside from the fact that a few of them defied the downdraft in both stocks and bonds this year, the idea of moving nimbly amid turbulent markets is intuitively appealing.

“Generally speaking, more than 75 percent of one’s performance comes from the market, rather than securities’ selection,” said Robert S. Meeder Jr., manager of Flex-funds Muirfield Fund, one of the most aggressive asset allocators.

Investors are buying into this reasoning. Flexible funds, as the group is also called, enjoyed net new sales in the first 10 months of this year of $14.4 billion - up more than 60 percent from the similar 1993 period, according to the Investment Company Institute.

Even after redemptions and exchanges, cash flows remained positive, whereas bond funds (which is where the ICI subsumes flexibles even those with stocks in their portfolios) plunged $22.4 billion into the red, from positive flows of $103.7 billion last year.

But if investors are tempted to see asset allocation funds as a kind of one-stop shopping, shopping for them isn’t easy. Among those that Morningstar Inc. classifies this way are Meeder’s - an outright markettiming vehicle - and a nearopposite, Quest for Value Opportunity Fund, which is 76 percent invested in stocks.

Each has been a top performer in the last year, but so has Invesco Total Return, where adroit management of the 45 percent of the portfolio invested in bonds is partly responsible. And so has the Sogen International Fund, which is a global vehicle with a third of its assets in foreign stocks, 19 percent in cash and the balance distributed across domestic stocks, global bonds and gold securities.

Managers of asset allocation funds have much more flexibility than their colleagues at conventional stock and bond funds, which tend to remain fully invested in their respective categories without regard to overall market conditions.