An Eclectic Set of Tactical Allocation Medalists
Market timing generally detracts from this category's results, but there are a few funds we like.
Janet Yang: To make it into Morningstar's tactical allocation category, we're looking for funds that make relatively meaningful asset allocation changes on a regular basis. For example a fund that moves 15% of its assets between stocks and bonds on a quarter-to-quarter basis would definitely qualify for the category.
These types of market timing moves are really hard to get right, and that's apparent when you see that, on average, they lag almost every other Morningstar allocation category over the last three-, five-, and 10 year periods. Looking into the attribution details, it's apparent that the asset-allocation moves that these funds make are consistently detracting from results.
We do have a few funds that we like in this space, though. Among tactical asset allocation funds, PIMCO All Asset and PIMCO All Asset All Authority have some of the longest track records. Investors who can stick with manager Rob Arnott's contrarian, valuation-based approach have been rewarded over the long term.
BlackRock Multi-Asset Income has also done well in the five years since it morphed into its current income-focused form. The focus on higher yielding areas of the market has provided a boost, though the fund looks good against other income-focused strategies as well.
AQR Risk Parity rounds out the list of medalist funds within the tactical allocation group. While macro headwinds haven't been kind to this fund's commodities stake, investors who believe in the risk parity concept still benefit from the fund's experienced management team and its well-developed risk monitoring system.
That's a fairly eclectic set of medalist funds for one category, and that really is a reminder to investors that when looking into tactical allocation funds, it's especially important to do your research and know what you're getting.
Janet Yang Rohr, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.