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By Jeremy Glaser and Kevin McDevitt, CFA | 11-15-2012 12:00 PM

Where Our Favorite World-Allocation Managers Are Investing

A very difficult investing environment has forced many managers to try atypical strategies, says Morningstar's Kevin McDevitt.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. I'm talking today with Kevin McDevitt. He is a senior analyst at Morningstar. We're going to look at his favorite world-allocation funds and where those managers are placing their bets today.

Kevin, thanks for joining me.

Kevin McDevitt: Thanks for having me, Jeremy.

Glaser: So, let's talk little bit about what you look at in world-allocation funds? What are the hallmarks of a great fund that investors should be considering?

McDevitt: Sure. Well, there is tremendous amount of variety when it comes to world-allocation funds. So, as an investor, I think, here more than most categories you really want to have a handle on the manager's strategy, and just how far afield they will go in terms of asset classes, and also how frequently they will tinker with those weightings. So, you have everything from very steady consistent funds, funds that don't change their asset allocations all that much, such as funds like Capital Income Builder from American Funds, BlackRock Global Allocation, those tend to be fairly steady funds. And you have funds that tend to be bit more tactical in terms of how they do things and I'll throw into that camp Ivy Asset Strategy and perhaps even Rob Arnott's PIMCO funds, All Asset and All Authority, to some extent.

So, you really want to be aware of, again, what the manager's strategy is to get an idea what asset classes they will invest in, but again then also how frequently they are tinkering with those weightings. It's really in many respects it's a matter of matching your own profile, your own profile as an investor with the strategy that make sense for you. Perhaps you are looking for a fund that is more tactical, such as Ivy Asset or with Rob Arnott's fund, or perhaps you're looking for a more steady asset allocation around which you can build a portfolio. So, really comes down to investor preference.

Glaser: So, when you look at those managers of those funds that you like today, where are they finding value? Have you seen any big tactical shifts in these portfolios over the last few months?

McDevitt: Yeah, it's very interesting because you're seeing a lot of different responses to a very--what I think is and I think most would agree--is an extremely difficult environment right now from an investment standpoint. You're seeing some things that are arguably atypical. For example, in a lot of the American funds allocation funds, such as Capital Income Builder, but some of others as well like American Balanced, you've really seen them make a strong move to equity. And really they've gone away from fixed income in a very big way. Both of those funds are at all-time highs in terms their equity weighting.

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