With bargains scarce, let managers with a huge canvas make the decisions.
With stock markets having rallied to records nearly all over the world and bond yields almost universally low, bargain-minded investors have a tough time finding obvious places to put their money these days. In the words of Jeremy Grantham of GMO, "All the major asset classes--real estate, stocks, and bonds--measure expensive compared with their histories."
Grantham is known for his consistently gloomy outlook. But one doesn't have to completely agree with his dire view--he thinks everything is in bubble territory--to acknowledge the general truth of his assessment. Although many managers say there are still plenty of opportunities in the markets, the search can be daunting for an ordinary investor looking for cheap, overlooked areas.
With that in mind, we thought this an opportune time to present a few funds whose managers take the asset-allocation responsibility onto their own shoulders and have the broadest possible canvas to do so. As their category name indicates, such world-allocation funds can invest in either the United States or abroad and can choose from a variety of securities rather than being limited to just one asset class. Of course, even these managers can't magically uncover a hidden trove of dirt-cheap gems. But under the circumstances, many readers might consider such wide-ranging funds appealing at a time when making allocation decisions oneself can be particularly challenging.
Below are four world-allocation funds that can play this role. We're not saying all are flawless, of course, or that these are the only viable options; all are solid, but be sure to investigate further if your interest is piqued.
American Funds Capital Income Builder CAIBX
It's very possible that you already own this fund or have clients invested in it; with more than $90 billion in assets, it doesn't need more publicity. But it is surely one of the better funds in this category. The talented investment group at Capital Research & Management selects stocks and bonds from around the globe, using the same general approach at their other large and successful offerings. This is one of the more conservative in world-allocation funds, not because it owns so many bonds--it doesn't, with about two thirds of assets in stocks--but because its managers tend to pick value-priced stocks and specifically favor those paying substantial dividends. The fund landed in the top half of the category in each calendar year of the bear market. Its low expense ratio is attractive, too. Its immense asset base is a bit of a concern, but less so than at some other American Funds offerings because its extremely broad mandate puts a vast amount of securities in its purview.
BlackRock Global Allocation MDLOX
Although not as value-oriented as Capital Income Builder, this fund isn't overly aggressive. It has a higher bond stake than the American fund and has more in cash as well, so its equity weighting is only around half of assets. That can change, though; its bond stake was significantly lower just a couple of years ago. In other words, the managers will go where they think the best opportunities lie, including shifting between asset classes, just as one would want. The fund has a shiny long-term record, as its managers have benefited from making contrarian plays. The stock managers, in particular, aren't afraid to deviate from the indexes or the portfolios of their rivals.
Thornburg Investment Income Builder TIBAX
Although the manager in charge of the bond stake retired earlier this year, this fund still has a lot going for it. Thornburg has proved its stock-picking acumen with its other funds over time, and the new bond manager seems more than adequate for the task. Moreover, he's not the key player here; the bond stake has traditionally been fairly small at this fund, meaning the firm's proven stock-picking talents take center stage. However, keep two things in mind. Investors wanting a more even balance between asset classes, and a fund more likely to alter their relative size as the landscape changes (the fund currently has more than 80% of assets in stocks, and that level isn't unusual) might not be content here. And the expense ratio, though it has been falling nicely as assets have grown, remains higher than we'd like to see.
UBS Global Allocation BNGLX
This fund, which is run by a large number of UBS investment professionals, tends to steer away from emerging markets and stick to big stocks. That's not the only cautious part of their strategy; they also tend toward the value end of the spectrum when choosing stocks. The team evaluates tons of data in order to determine which securities, in which regions, offer the best values at any particular time. Right now, they're favoring the U.S. more than most of their peers. The fund's record in recent years hasn't been stellar, but its strategy leads us to think it should be a rewarding holding over the longer term--and importantly, it's likely to be a decent place to hide when the markets turn south.
Greg Wolper is a senior analyst with Morningstar.