Jeremy Glaser: Allocation funds, which hold a mix of different assets, can be a great core holding for many investors. But not all are created equal. We ask Morningstar Manager Research analysts to share three of their favorites across categories.
Jonathan Wallace: Gold-rated Fidelity Four-in-One Index is a proof that a basic, straightforward approach can yield fantastic results. As its name indicates, the fund combines four index funds into one allocation fund that targets 85% equity, meaning the fund may be more appropriate for growth-oriented investors with a longer time horizon. The fund makes use of U.S. equities, international equities, and U.S.-based fixed income. The fund has a long track record with solid performance in its peer group. Adding to the appeal is that the fund has the cheapest expenses in its category at only 11 basis points. Add it all together, and investors have a solid recipe for success.
Andrew Daniels: Gold-rated Dodge & Cox Balanced is a great option for patient investors that are willing to stomach some shorter-term volatility. The fund is led by Dodge & Cox's U.S. equity and U.S. fixed-income investment committees. Each committee is composed of eight members who have been with the firm for more than 20 years on average. That helps to reduce key manager risk. By prospectus, the fund's equity stake can range from 25% to 75% of assets. It's been toward the higher end of that range in recent years, though the equity stake has decreased to about 65% of assets as of June 2017. The allocation is determined by relative valuations, and the portfolio is built with a three- to five-year investment horizon in mind. All told, the fund's decisive value approach combined with the rock-bottom fees that it charges have contributed to its long-term performance record. It remains a great option going forward.
Dan Culloton: Vanguard Wellesley Income is one of our most solid options in the allocation 30% to 50% equity category. It's got solid, experienced management, very low expenses, and consistent strategy on both sides, on both the equity and fixed-income side of the fund. It invests in about 60% to 65% bonds, usually high-quality corporates, and about 30% to 35% in equities, usually dividend-paying stocks which have a higher yield on the S&P 500 but are not at the extremely high-yield end of the market, so, they are not quite as risky as the most high-yield equities out there. This has proved to be a good combination for the fund over a long time, including periods when interest rates are rising, such as from 2004 to 2007 when the Fed rates jumped from about 1% to about 5.25%. During that period the fund outperformed its category by a significant margin. Not to say that there isn't interest-rate risk with a portfolio that invests this much in bonds and high-yield stocks, but over time this one has done an excellent job of controlling risk and is still worthy of its gold Analyst Rating.