Asset Allocation Funds

There is a type of open end mutual fund that is generally called asset allocation fund. There are quite a few of these funds out there. What reminded me about these is an article today by Tim Middleton where he mentions one from Vanguard.

These fund usually allow the manager to go from 100% stock to 100% bonds or anywhere in between and possibly a chunk in cash too.

Setting aside my dislike for open end funds, this type of product does not make a lot of sense to me. Investors who have financial plans usually have some sort of asset allocation mix like 65% stocks, 30% bonds and 5% cash. Where would this type of fund fit in? What is the mix right now? What will it be in a month or next quarter? What if the manager is wrong with the mix occasionally (not an unreasonable question)? If the fund makes up 30% of a portfolio and the manager overweights bonds in a big up year for stocks the portfolio lags. If the fund makes up 5% of a portfolio it probably wouldn't be enough to help. Or maybe its just me.

On Squawk Box Brian Belsky posited that we may be in a value stock bubble because no one is talking about it. This may not be as far fetched as it sounds. In the last two years the Russell 3000 Value iShares (IWW) and the S+P 500 Barra Value iShares (IVE) are both up 60%. How many years did we average 20% growth during the bubble? The bubble idea loses some momentum on a four year chart. Over that time IWW is up 20% and IVE is flat.

There is no historical precedent, that I'm aware of anyway, for bubble to hit the same market every couple of years. Usually its more like 20 years. A correction in value stocks could come along at anytime for no reason at all but that we have not taken back the highs from five years ago leads me to think an implosion from here is a long shot.