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A Tactical Pick for Your IRA

Christine Benz

Christine Benz: Hi, I'm Christine Benz for Morningstar. You have until April 15 to fund an IRA for the 2009 tax year. So all this week I'll be talking to some of Morningstar's experts to get their best ideas for an IRA pick. I'm here today with Karen Dolan. Karen is director of mutual fund analysis for Morningstar. Karen, thanks so much for being here.

Karen Dolan: Thanks, Christine.

Benz: So Karen, your pick today is something that you picked actually a couple of years ago, when you and I talked about best ideas for an IRA. So kudos for consistency, and also kudos for picking a fund that did quite well during the '08 period. What is the fund, and why do you still like it?

Dolan: The fund is PIMCO All Asset. It's a fund that I've liked for a while. Soon after it came out, this was a fund that was very appealing for a couple of reasons. One is it has a different goal than most funds, and that is a more inflation-minded goal.

So the fund is a tactical asset allocation strategy, where manager Rob Arnott has some quantitative models. Also, he has a lot of experience thinking about different asset classes, and thinking through where the right place is to be at a given time. That can raise some alarms because I think market-timing is very difficult.

Benz: And few managers have been able to do it well, historically.

Dolan: Exactly. What I liked about Rob Arnott from the start was that he bases it in some fundamentals: valuations, growth, yields, and correlation between different asset classes. Those are the levers that he's looking at in terms of how to put different asset classes together, and so that was what was appealing.

For a retirement portfolio, this is just a nice way to bring in some different asset classes, and have somebody be timely in thinking about where to be at any given point in time, without putting that onus on the investor--in an account like an IRA, where you would really like to set it and forget it.

Benz: So this is a fund, based on its historical performance pattern, would you expect it to maybe not perform so well in strong up markets like '09, and then hold its ground better than its peers in a down market like '08?

Dolan: It should be much more steady, just like you said, Christine, especially in a market that's led by equities, because equities are just not a big part of this fund's toolkit.

Benz: It's not a core competency for PIMCO.

Dolan: Exactly. But I will say that it's not that it doesn't participate at all in good markets. It does have other asset classes that it tends to go to a lot. It had big stakes in commodities, and it had a bigger stake in real estate several years ago, but it really pulled that back just in time. So there are other asset classes that can give the fund a little bit of oomph. It's just that if there's a really heated equity market, this fund's likely to lag, and that's been its pattern.

Benz: OK. Thanks, Karen. It's an interesting opportunistic, potentially all-weather pick. We appreciate you bringing it in to us.

Dolan: Thank you, Christine.

Benz: Thanks for watching. I'm Christine Benz for