View Count: 530 |  Publish Date: April 06, 2014
This could be the right time for 'go-anywhere' mutual funds

Over the last six years, roaring bears and raging bulls both have had their turns to be right about financial markets.
But investing success in the next market phase could be far more about pinpointing individual opportunities than riding a wave.
This is when it should pay for a money manager to have maximum flexibility: the option to go almost anywhere with investors dollars in search of decent returns. That could include stocks, bonds, real estate or commodities, for example. Flexibility also can mean the option to just sit and wait for better prospects.
Wealthy investors have long had access to hedge funds and other money managers who offer the nimble, go-anywhere approach. In the last 20 years, the mutual fund industry has done the same for small investors via funds often categorized as tactical allocation or alternative portfolios.
But Wall Street is notorious for creating fee-generating investment products just to sell them, with little or no regard for whether theyre good for the investors who buy them.
Some go-anywhere mutual funds, however, have attracted billions of dollars from investors over the years by offering clear visions of how they can add value — or, just as important, how they can minimize losses if markets go awry.
There are a few reasons these funds are worth a look now. First, U.S. stock prices are at or near record highs after the stunning gains of the last five years. By classic yardsticks, such as price-to-earnings ratios, stocks are at least fairly valued if not overvalued, at a time when corporate earnings growth has slowed sharply.
Yet many stock-only mutual funds are designed to stay fully invested, no matter the market backdrop. If youre looking for some measure of protection from any steep market pullback, plain-vanilla stock funds may not provide that.
Second, the global economys rescue by central banks over the last five years has entered a new chapter. The U.S. Federal Reserve has begun to cut back on the torrent of money it has been supplying to the financial system to keep interest rates down. In Europe and Japan, meanwhile, central banks say theyre poised to provide even more help to their still-struggling economies.
The banks diverging policies add to confusion over the next major move in interest rates, and thus in the value of investors bond holdings. A steep jump in market rates would send prices of older bonds tumbling.
Third, while share prices in the developed world have surged in the last few years, emerging markets overall have slumped in the face of weaker economic growth, rising inflation and political upheaval. For value-hunting investors, that means potential opportunities.
Of course, just because a fund can invest in almost anything doesnt guarantee that the managers will make smart choices.
But even for investors who dont see a need for these funds, their guiding principles can be helpful at a time like this: Focus on value, and consider whether your portfolio has the balance you want between growth of capital and preservation of capital.
Here are profiles of four popular go-anywhere funds and how theyre investing:
First Eagle Global: While many money managers have been loading up on stocks over the last year as share prices have soared, the $49-billion First Eagle Global fund has been edging away from the market.
Prices of stocks have moved well ahead of earnings, said Kimball Brooker Jr., co-manager of the fund in New York. Weve had a lot of stock prices converging with what we think the companies are worth, he said. And when that happens, they start hitting the sell button.
The result: The funds cash holdings grew from 14% of total assets two years ago to about 22% at the start of this year, nearing the highest level in the portfolios 35-year history.
That leaves about 70% of the funds assets in stocks worldwide — and nothing in bonds. Though the fund can buy fixed-income securities, its managers find bonds far less attractive than stocks now, with yields so low.
In the corporate junk bond market in particular, Brooker said, the parallels to the old credit bubble are there. Investors are willing to accept bonds that are a great deal for the issuer but not for buyers. The average yield on an index of junk bonds tracked by KDP Investment Advisors is 5.21%, nearing the all-time low of 4.86% reached last May.
Of the 70% of the fund in stocks, about half is in U.S. issues; the rest are foreign, mostly in developed markets. The U.S. names include some of the big tech firms that show up on classic value investors radar these days, such as Oracle Corp., Cisco Systems Inc. and Intel Corp.
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