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Fund Spy

Funds that Go Anywhere to Beat the Market Heat

These funds' managers have a lot of flexibility, and they use it well.

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It's hard to make money when everything you invest in is losing value. Much like in the market downturn of 2002, most stock funds this year find themselves on the wrong side of the ledger.

While most managers are restricted by fund mandate to a specific part of the market, those with more flexibility can move out of the way if they see trouble and dive in where they find opportunity, regardless of asset class, region, or market cap. These flexible funds not only try to pick the best and avoid the worst securities in a given asset class or market, but also can sell them short (bet they go down) and shift money between asset classes and markets based on their macroeconomic views. Several fund managers using this type of approach have avoided the large losses that have plagued the average stock fund over the last 12 months.

Investing in a go-anywhere, asset-allocation fund can pay off in a variety of markets if the manager is skilled. It can also cause a lot of pain if the manager stumbles. But if you find a talented manager who can use the added freedom well, flexible asset-allocation strategies can serve as a nice complement to a diversified portfolio. Below we highlight a trio of funds that we think have done a fine job navigating today's choppy markets and have long-term potential.

Wenli Tan does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.