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The Return Of The Fund For All Seasons


Personal Business: Smart Money

THE RETURN OF THE FUND FOR ALL SEASONS

Asset-allocation mutual funds became popular after the 1987 crash as a way to avoid wide market swings by simultaneously investing in stocks, bonds, and cash. But they faded as stocks recovered and equity funds took off. With the market at worrisome highs this year, investors are again flocking to the funds.

It's best to look closely before jumping in. Many funds carry loads, so you'll be charged a percentage of your investment. Despite their common philosophy of shifting assets among sectors as market conditions change, investment strategies can be dramatically different.

Some funds stray from a middle-of-the-road approach. Quest for Value Opportunity, sold by Quest for Value Advisors in New York, achieved the best three-year return through Mar. 31 by buying mostly niche stocks with low price-earnings multiples. That paid off nicely in 1991, with a 51% gain. But with 5% of assets in bonds this year, it missed the bond rally. Its return through Apr. 13 was 1.62%.

Dreyfus' Capital Value Fund, heavily oriented toward bear markets, bet wrongly on a market drop last year. Its manager, Comstock Partners, invested in gold stocks, shorted big consumer stocks, and put nearly 40% of the fund in low-interest T-bills. The fund dropped a woeful 10.36%. But this year, it's up nearly 10%. Says manager Stan Salvigsen: "Investors [in my fund] should feel the same way I do about the market."

Merrill Lynch's Global Allocation fund and Fidelity's Asset Manager try to balance stock and bond holdings 50/50. They add an additional measure of safety by investing in foreign stocks and bonds. Such conservative posturing has helped both funds produce above-average returns. However, neither is positioned for shoot-the-lights-out years.

AUTOPILOT. The simplest fund is Vanguard's Asset Allocation fund, which practically runs on autopilot. Between 40% to 60% of its assets are in stocks tied to the Standard & Poor's 500-stock index and the rest is in Treasury bonds. Its three-year average annual return is 14.28%. One advantage of this hands-off style: The annual expense ratio was 0.52% of assets vs. 1.62% for the group average.

All asset-allocation funds try to minimize risk, but each has a different idea of how to achieve that goal. Investors should make sure they're not getting into a fund that will gamble with strategies too risky for their taste. A LOOK AT THE TOP FUNDS

Three-year avg.

annual return Year to date

thru 3/31/93* thru 4/13/93*

Quest for Value Opportunity 20.44% 1.62%

Merrill Lynch Global AllocA. 17.21 9.19

Fidelity Asset Manager** 16.53 6.38

Phoenix Total Return 16.33 2.69

Connecticut Mutual Total Return 14.64 6.08

Group average (55 funds) 11.5 4.37

S&P 500 14.12 0.98

*Does not include sales loads **No load

DATA: MORNINGSTAR INC.

Geoffrey Smith


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