I found this article from InvestmentNews (via IndexUniverse) that was about portfolio construction evolution (I've been writing about this in one way or another since 2004).The focus was on multi-asset class OEFs including the new Pimco Global Multi Asset Growth Fund (PGAIX) which I wrote about a few weeks ago.
The case against these funds (in the article) was that they are expensive and that a lot of them are down a lot. The case for was a little weak but the funds are "more sophisticated" but not much more was said than that.
There were a couple of funds mentioned that I had not heard of before. One was the MFS Diversified Target Return Fund (DVRAX) which is down 38% YTD. DVRAX shoots for a 5% real return by combining stock picks from UBS and currency strategies.
Another fund mentioned was Schroders Multi Asset Growth Fund (SALAX) which is down 37% YTD. Aside from the usual stocks and bonds it invests in in real estate, commodities, currencies, and private equity, and investments in absolute return strategies.
Ouch on both of them.
If you've been reading the blog for a while you know I am a big believer in the concept of alternative strategies when used in moderation. Based on the results of the above funds and the couple of funds I was lucky enough to stumble across there is a wide range of possibilities in terms of results. Allocate 3% into a fund like this that doesn't work out like the ones above and you will have learned a lesson. Allocate 15% to such a fund and you may have dug yourself an unnecessarily big (on a relative basis) hole to get out of.
There are plenty of things that could fit into this segment of the market including any of the funds I've written about before, farmland stocks, Norwegian fisheries, the new carbon futures ETP (exchange traded product), hydro electric or anything else you can find. I write about these sorts of things because it is important to learn about them, figure out how they might behave during certain periods of market stress and explore how to use them.
For now I still think going small is the right way to go but for one person farmland stocks might be the answer or for someone else a carbon credit ETF or maybe nothing at all but I am convinced it is important to study these things as I believe it will evolve into an asset class as everyday as REITs which used to not get much consideration as an asset class. If you are on this now then I think you might be ahead of the game.
4 comments:
Too many moving parts for me--a violation of Occam's Heater :)
In the spirit of learning and implementing Occam's Heater, I've been looking into the holdings of my etfs. I'm continually surprised how often individual stocks outperformed the etf as a whole, even in this lousy market.
You've written a lot about funds blending away the advantage of stock picking, and I think that's equally true for the multi-asset products. They may be more sophisticated, but they're also more complicated. I just don't see this environment favoring those kinds of products.
Funds can blend away the disadvantages of stock picking as well. I'd imagine that for every stock you find that outperforms the ETF as a whole, there's usually one that underperforms the ETF.
only one alternative strategies fund in plus territory YTD I could find was RYMTX - Rydex Managed Futures. all have done better than S+P 500 but are still down YTD. What does managed futures do?
If you have $10MM you can get a very nice return at GGHEX! Up 10% YTD.
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