Rekenthaler Report

Tactical-Allocation Funds: Even Worse Than Expected

John Rekenthaler

Fool Me Once
Tactical-allocation funds--investments that readily adjust their asset mixes in response to current market conditions--are a sucker’s play.

Such funds garner assets after a stock market crash, preying on investors’ desires to win the previous war. That war fails to arrive; tactical-allocation funds lag the rising markets; their shareholders become disillusioned and exit the funds. A few years later, that next stock market crash does arrive. The tactical-allocation funds then become paper tigers, showing strong relative performance but offering little benefit to investors given their small size.

John Rekenthaler does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.