Fund Watch
One Fund to Own It All
Consider a global balanced fund, which taps the world's stock and bond markets, if you want just a single fund for your portfolio.
By Elizabeth Ody, Associate Editor, Kiplinger's Personal Finance
August 12, 2009
If you resolve to own only one mutual fund, a global balanced fund would be a strong candidate. Though domestic balanced funds will throw a few foreign securities into their mix of stocks and bonds, you'll need a global fund to pursue all of the world's stocks and bonds, estimated to be worth $120 trillion. Given the composition of the globe's markets, a perfect cross-section would look like this: 14% U.S. stocks, 18% foreign stocks, 30% U.S. bonds and a whopping 39% in non-U.S. bonds.
That allocation seems wacky. Maybe that's why Vanguard, which offers excellent index funds that cover the full spectrum of U.S. and foreign stock and bond markets, doesn't have a global balanced index fund. You could take several of Vanguard's broadest index funds and effectively assemble a global balanced portfolio, but that breaks the one-fund-does-all concept.
Unfortunately, there's a dearth of good all-encompassing fund picks, whether indexed or actively managed.
The standout, BlackRock Global Allocation, comes with a hefty sales fee. It beat its peers with an 8.5% annualized gain over the past ten years through August 10. Its A shares (symbol MDLOX) lost 11 percentage points fewer than the average global balanced fund from the market's October 2007 peak through its March 9 low-shedding 30%. That record (and its highly experienced manager) makes it a good choice as long as you invest through an adviser who can get you in without the sales charge.
Do-it-yourselfers have the perfectly competent Fidelity Global Balanced (FGBLX), by far the best no-load offering. Its 5.6% annualized gain over the past decade lands it in the middle of the pack. Its 35% loss through the 2007-09 bear market saved investors six percentage points compared with the average similar fund and 20 points compared with Standard & Poor's 500-stock index.
Co-managers Ruben Calderon and Geoff Stein make the big-picture calls about asset allocation. Then a team chooses the individual stocks and bonds. Fidelity measures the bond side of the fund against an index of developed-market government debt. That means the bond portfolio, typically 40% of the assets, leans to high-quality bonds with a heavy foreign component-at last report, it held $3 of foreign bonds for each $1 of U.S. debt. That should give you some comfort if you're concerned about a falling dollar.
Nearly all of Global Balanced's foreign exposure -- both among stocks and bonds -- is in Europe and Japan. Calderon thinks emerging markets present compelling opportunities, but to keep the fund from being too volatile, he won't stash more than 6% of its assets in stocks from developing nations.
Another inexpensive option is the only exchange-traded fund this category offers to U.S. investors. It is PowerShares Autonomic Balanced NFA Global Asset Portfolio (PCA). The fund, which invests in a basket of fairly run-of-the-mill ETFs, is extremely well diversified, with developed and emerging-markets holdings and a broad range of bonds. However, this young ETF hasn't covered itself in glory. From its inception in May 2008 through August 10, it lost 23.5%, nearly four percentage points worse than the average of its peer group.
This ETF with the ungainly name isn't likely to blow up, but neither is it seasoned enough to be the only fund you own. Let's hope more fund companies introduce low-cost and well-designed global balanced funds, both traditional and exchange-traded. The concept makes sense. But for now, the selection is limited.
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Reader Comments (11)
Posted by: Limoman at 08/12/2009 09:21:19 PM
Well, Sorry, but Not Interested in a Fund that hasn't done much Worse than my other Funds... a FGBLX @ 5.3% apy for past 10 yrs does nothing for me..and a 7.12...My Global and EMD Bonds are doing alot better than those..
Posted by: David m at 08/13/2009 10:43:18 AM
Although superficially logical, this article is foolish. Placing all your mutual funds assets in the hands of one manager is potentially deangerous, even in a balanced fund. As we saw in 2008, even those fund managers in the Kiplinger 25 for their long term excellence and prudence, such as Dodge & Cox, Davis and Longleaf, could suddenly drop well below their peers and indices by making misjudgments. This article is a disservice to Kiplinger readers.
Posted by: ron at 08/18/2009 03:59:48 PM
I just wasted my time reading it.
Posted by: Van L Freeman at 08/19/2009 12:00:21 AM
A Good review of special M fund offerings for most average investers and should be given a lotta attention for thase who want the ie Vanguard Index Funds.
Posted by: Elizabeth at 08/28/2009 04:49:57 PM
Hi David M, this is Elizabeth Ody, the author of this story. Your point about diversifying among multiple managers is well taken. I certainly wouldn’t want to trade places with someone who put all their money with Bill Miller last year. But no amount of manager-diversification could have saved investors from getting killed last year, unless they’d happened only to pick managers who were sitting on piles of Treasuries (which, by the way, isn't itself a very well-diversified approach). The Fidelity fund’s managers are pretty conservative in that they always think about the bets they’re making as bets relative to their indexes. You’re simply not going to see a Miller-style blowup at funds like these. Hope this helps.
Posted by: Limoman at 08/31/2009 01:51:36 PM
VG.. BUT WHY DO YOU AND KIP RECOMMEND LOADED FUNDS AND/OR PROMOTE USE A BROKER? IF YOU LOOK AT THE WORD "BROKER" CAREFULLY WHAT DOES THAT TELL YOU.. USE THEM AND YOU WILL BE BROKER.. TGBAX if have $50k or more or TEGBX if have less and throw in A little into the New Pimco Global Offering of PGSDX..I find it amazing VanGuard doesn't have Global And EMD Bond Funds! On the otherhand? (a) they outperform their Dometsic one's and (b) Would Loose too much Investors $ keeping them afloat.. Another Option? JUST OWN VWELX ( OR VWINX) AND TGBAX & PGSDX. AND YOUR GOOD TO GO TO INFINITY AND BEYOND.. And you've just made an ave of over 8% apy for the past 10 yrs..Beating just about every Balanced Fund and Bond Fund on the Planet Earth.. But, this would be too easy and simple and of course, put some 5,000 other Mutual Funds OOB..How about it VanGuard and Pimco? Join Forces and Merge and you 2 would Dominate the MFund Planet! And Sorry , but FIDO is TOO AGGRESSIVE and that is what gets them into Trouble come every Bear market Season.. But their FFRH and FNMIX are good Plays in Bull markets!
Posted by: Limoman at 09/03/2009 09:58:10 AM
Don't Like Bal. Funds? 1. Pro's/Advisors HATE them 2. Why? They have done about as well or better than they have at Less Cost and They have Transparency.. 3. And yes, Don't own just one, own a couple that is % allocated the way you Think you should be..ie: Happiness is a back up.. 4. Advantage of using the VWELX and VINX? They use index Funds and not nearly as much hands On and depending on the Mgrs. Skills to select what % to be in one sector or the other all the time.. and they provide having a 50/50 bal if you own them both equally.. much touted as the best "sleep at Nite" Port. 5. One last , but not least Reason Pro's Don't like them? It would put most of them out of business if people were more aware of them and using them, so Self Preservation maybe just the main reason they are so Negative about them. Yah think? and wonder why so few Pension Plans offer them? Could it be they don't pay enough Commissions/fees to the Pro's to handle them? A VWELX & VWINX + TGBAX + FNMIX past 10 yrs ave a 8.6% apy so that may not be enough for you to warrant investing in such a Port of only 4 funds and you , like most Men? Love to have More Toys to play with and want to own as many funds as you can.. More is Better approach...
Posted by: Ad Orientem at 09/15/2009 06:25:00 PM
Given that the first rule in investing is don't loose money, if I were limited to a single mutual fund I think I would have to lean on the conservative side. I would favor a fund that was likely to give a reliable return with limited downside potential. That means something conservative but sufficiently diversified to still offer gains. If limited to a single mutual fund, I think my choice would be the Permanent Portfolio Fund (PRPFX). In its near 28 years it has had exactly four down years. That satisfies my first rule about not loosing money. The question of returns is a bit more dicey. Because of its nature this fund tends to perform better during periods of economic volatility than high flying prosperity. PRPFX is a five star conservative allocation fund that follows an investing strategy closely aligned on the late Harry’s Browne's model. The holdings of the fund are combined into six different asset classes— gold bullion coins (20%), silver bullion (5%), Swiss Franc denominated bonds (10%), stocks of U.S. and foreign real estate and natural resource company stocks (15%), U.S. aggressive growth stocks (15%), and U.S. Treasuries and high-grade corporate bonds (35%). These allocations are static and have not changed in the fund's 28 years of existence. So how has this worked out? Oddly the fund has been a respectable performer over the long haul. It has been best of breed (conservative allocation) for most of the last decade, outperforming all other funds in its class and most so called moderate allocation funds. Its 3, 5 and 10 yr averages beat the S&P 500. But at least part of this solid performance must be credited to the funds large holdings in metals and the agonizing death by a thousand cuts of the US Dollar. The fund's metal holdings have buoyed its returns. But back during the roaring 90's when Wall Street was hotter than Mexico in July the fund underperformed, often lagging Treasuries. Its performance since inception could be ranked as comparable to a well run bond fund with out the risks that come from being concentrated in any single asset class...In a more realistic scenario I would also recommend it as a core fund for retirement investments around which one can add some other funds to beef up those asset classes one might want to give a little more weight to.
Posted by: Bry at 12/12/2009 08:10:43 AM
I have so tried to understand investing. I even went to the library and have books to read. But it just seems I just don't get it. I am in my late 50's have very little retirement and have been gifted a little money and am trying to invest it for my retirement. But so afraid it's way over my head.
Posted by: norman kemner at 02/02/2010 09:49:19 AM
DEAR MISS ODY, I ENJOY YOUR ARTICLES IN KIPLINGER AS THEY ARE VERY helpful. I HAVE A QUESTION. DO YOU KNOW ANY FUNDS THAT INVEST IN RARE COINS?
Posted by: marc.brody@na.linedata.com at 07/13/2010 10:33:51 PM
My question for Kiplinger...How do you go about ranking the top 25? After reading your Kip25 story, I recognize several firms I have engaged with based on my business. In one instance the fund manager runs the entire business off a spread sheet. As an investor, I would never trust a penny of my money on a firm that operates its business, in this fashion. I am surprised that Kiplinger would not dig deeper into the firms it promotes. Given market volitity of the day, risk management and operational efficiency should be factors taken into consideration. I wonder what you guys were thinking. Regards, Marc