All-cap funds differ
NEW YORK – Investors looking to all-cap funds as a simple way to immerse themselves in a wide variety of stocks might consider that “all” in some cases can really mean “most,” as in “all-expense-paid vacation” or “all solid gold.”
To be fair, the variations among all-cap funds reflect divergent philosophies and not the flimsy promises offered by, say, trench-coated entrepreneurs selling watches of dubious origin. So while all-cap funds weren’t designed to deceive, investors nonetheless should consider that some funds take more pains than others to remain rooted in “all” corners of the stock market. Others keep holdings in stocks of various sizes but focus on areas deemed likely to outperform.
Those that shift their weighting might now tilt toward large-capitalization stocks and away from small-cap stocks as the big names now appear to be outpacing smaller stocks for essentially the first time since the start of the decade.
“There are a lot of different flavors of all-cap funds,” said Todd Trubey, an analyst at investment research provider Morningstar Inc., describing all-cap funds as often reflecting either “go everywhere” or “go anywhere” philosophies.
“Some of them are basically just market-cap agnostic and therefore those types of funds may not move very much. At the same time, there are managers who look at valuations and do try to position the fund more opportunistically.”
Portfolio managers with a so-called agnostic approach to market capitalization, tend to give little consideration to a company’s size.
He noted that the go anywhere philosophy embraced by some all-cap fund managers makes their stock-picking abilities important.
“For a go anywhere fund where the manager is agnostic about stock size then you want to know that the manager has a good record and a good strategy for that style,” Trubey said.
“They will move around a lot and that’s not a bad thing. You have to know what you’re getting there in order to use the fund well.”
Despite their ability to cover large ground, fees at all-cap funds don’t tend to be out of whack with those of other funds. In fact, they’re often in line with the low fees often seen in large-cap funds.
Possible shifts in market momentum can make the broad base of an all-cap fund appealing to investors unsure of where to put their money, said Steve Schoepke, vice president of research and product development at AIG SunAmerica Asset Management.
Schoepke said all-cap funds can work well as core holdings. Investors can then dress up their portfolios by perhaps picking “other investments to really take advantage of where they feel the market is going.”
In other cases, he noted, an investor could use something as a simple as an index fund coupled with all-cap fund with a go anywhere approach to cover more opportunistic moves.
“When you take a style agnostic approach you’re saying to the manager, ‘What we’re asking you to do is don’t tie yourself to a style,’ ” Schoepke said.