Flex Portfolio Funds

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Aug 26, 2008 10:55 pm

Flexible Portfolio funds, or Go-Anywhere funds, have become more popular of late, particularly in this environment.


I'd be curious to know if a lot of forum members are using them, and of those of you who are using them - how? As a core part of a portfolio, or a small slice? Any in particular you favor?
Aug 27, 2008 1:55 am

I generally agree with Ice.  I'll set aside a small 'slice' for a flex fund, but only if I am very confident in the PM's ability and disciplined process.

I think that if you use them as a 'core' you are taking some big risks with your clients' money....you don't really know where these guys are going next.

Aug 27, 2008 10:36 am

I use them for a piece in smaller accounts (under 100K).  I like Capital Income Builder, First Eagle Global, Ivy Asset Strategy, Blackrock Global Allocation.  They are each very different, so be sure you know what they are investing in.  Capital Income Builder and First Eagle Glob are by far the most traditional, and can be used as a core holding for almost any portfolio.  Ivy and Blackrock are a little more out there (shorting/commodities/hedging, etc), and should be used more as satellites.  I like these types of funds for the downside protection and diversification/mix of asset classes. 

 
Be careful about pairing Capital Income Builder with other American Funds, as you will get lots of overlap (not necessarily with specific securities, but style and performance).  CAIBX is pretty much Investment Co of America, Cap WGI, and Bond Fund mixed together.  Although there's little overlap, the performance is pretty much identical to doing a 40/40/20 split (although the better thing about CAIBX is that it does the same performance with less volatility, as they can flex the % they have in each class - stocks/int'l/bonds/cash).
 
So I usually either pair CAIBX with other fund families, or add other American Funds if I want to weight it differently (i.e. add some CWGIX to it, or add some Bond Fund or World Bond Fund, or whatever I need to do to balance the portfolio the way I want).
Aug 27, 2008 9:36 pm

I have been staying away from AF for that reason B24, there seems to be a lot of overlap among all of their funds that are even vaguely similiar in objectives. I also have felt for a while that they have gotten so big at this point that some of their funds, i.e. Gr Fd of Amer, can not avoid become closet index funds.

 
Had dinner recently with a member of the Portfolio Mgmt Team at Blackrock Global Alloc- they do seem to be a bit more conservative than Ivy Asset - 700 positions.
They seem to be pretty smart guys with a real big picture approach.
I have been using both Ivy Asset and Blackrock, in small pieces, just wondering if it makes senseto make it a bigger piece. I guses you are right, who knows where they go next and what if they are wrong. On the other hand, i think its going to be a longer time than we would like, before the style box approach works again, and if thats correct, it can make life tough for us.
Aug 28, 2008 3:24 pm
I think discipline is a huge factor in your research. How often are they moving money around? What are the restrictions in place for holdings (% wise). These are things you should look into before careleessly putting exposing someone's money to a money manager who has no problems passing on their tax liability to your clients.
 
I agree with ice. I would create my own. Ivy seems to do a decent job though.
Aug 28, 2008 3:50 pm
Sportsfreakbob:

I have been staying away from AF for that reason B24, there seems to be a lot of overlap among all of their funds that are even vaguely similiar in objectives. I also have felt for a while that they have gotten so big at this point that some of their funds, i.e. Gr Fd of Amer, can not avoid become closet index funds.

 
Had dinner recently with a member of the Portfolio Mgmt Team at Blackrock Global Alloc- they do seem to be a bit more conservative than Ivy Asset - 700 positions.
They seem to be pretty smart guys with a real big picture approach.
I have been using both Ivy Asset and Blackrock, in small pieces, just wondering if it makes senseto make it a bigger piece. I guses you are right, who knows where they go next and what if they are wrong. On the other hand, i think its going to be a longer time than we would like, before the style box approach works again, and if thats correct, it can make life tough for us.
 
Though I agree to an extent on your analysis of AMF, I disagree that they have or will become closet index funds.  First off, I never use their plain-vanilla domestic equity funds (Wash Mutual, Amer Mutual, ICA).  If you look at Fundamental Investors, Growth Fund, Capital World Growth, Capital Income Builder - these are hardly index funds (and I'm not just referring to S&P500).  They are objective based funds, not style funds.  So for example, Capital Income Builder gives you rising dividends, growth of capital, and downside protection.  They have nothing to do with the S&P500, the EAFE, or any other Index.  Growth Fund, though it is primarily domestic, regularly beats the S&P500.  It has beat the S&P 7 of the past ten years, and beats it in every recognized time frame (1, 3, 5, 10, 15 yr. - and by 300-500 basis points).  Fundamental Investors does even better than that.
The gap is even wider when you add in expenses for an index fund.  So, I am not sure the "indexing" argument will ever work for American Funds due to their management style, regardless of their size.  Although, even their wholesalers will tell you to be careful about which funds to pair together due to overlap (again, mostly due to their "objective" based management versus "style"-based management).
Aug 28, 2008 8:28 pm
iceco1d:

B24 - I think, and I may be wrong, that he is referring to their size, not their investment approach.  As in, once you are SO big, you can only go so many places [that will actually impact your return]...

 
Not to end without inserting some typical "iceco1d" style comments; it should be noted that the above funds that have "consistently outperformed the S&P 500" have done so by "fishing in waters" [assets] that aren't included in the S&P 500.  That's all. 
 
B24 - Ice is correct, i was referring to their size. And specifically to funds like GR f of Amer. (i hate that name - its too long). You get that big, you just have to lose an edge, hard to get in and out of positions in a reasonable time frame, etc.
 
With that said, i agree with your comments on some of their other funds. Didnt mean my comments to be a damning of AF.
Aug 28, 2008 9:57 pm
Sportsfreakbob:
iceco1d:

B24 - I think, and I may be wrong, that he is referring to their size, not their investment approach.  As in, once you are SO big, you can only go so many places [that will actually impact your return]...

 
Not to end without inserting some typical "iceco1d" style comments; it should be noted that the above funds that have "consistently outperformed the S&P 500" have done so by "fishing in waters" [assets] that aren't included in the S&P 500.  That's all. 
 
B24 - Ice is correct, i was referring to their size. And specifically to funds like GR f of Amer. (i hate that name - its too long). You get that big, you just have to lose an edge, hard to get in and out of positions in a reasonable time frame, etc.
 
With that said, i agree with your comments on some of their other funds. Didnt mean my comments to be a damning of AF.



On a conference call last year, Lincoln Andersen(head strategist at LPL) referred to Growth Fund of America as "Blend Fund of the Globe"  

Sep 3, 2008 7:31 pm
iceco1d:

B24 - I think, and I may be wrong, that he is referring to their size, not their investment approach. As in, once you are SO big, you can only go so many places [that will actually impact your return]...



Not to end without inserting some typical "iceco1d" style comments; it should be noted that the above funds that have "consistently outperformed the S&P 500" have done so by "fishing in waters" [assets] that aren't included in the S&P 500. That's all.





I agree with you guys. However, most of American's funds do not compare directly with the indexes, so it's tough to compare. I just happen to like their more go-anywhere approach. I think this is what has kept their volatility down over the years. But Growth Fund does consistently beat the 500. As a side-note, I don't even use Growth Fund very often. I typically use Hartford Cap App for Growth. I find that American's categories are very conservative (Growth Fund is really large cap value IMHO).



Sep 3, 2008 8:57 pm

In fact, last i looked, which was a while ago, Gr fd of Amer, was 27% mid cap!!!