Morningstar fund analyst Kevin McDevitt doesn’t want to talk about it. "We could be on the phone all day talking about categorization," he says. Here are just a few names: Global Tactical Asset Allocation, All-Asset, Multi-Asset, Mixed-Asset, Alternative Multi-Strategy, Global Flexible Portfolio, Global Macro, Global Multi-Asset and so on.

"I think of them as 'World Allocation' funds," says McDevitt, who follows that category for Morningstar. "They can invest wherever they want. These funds tend to have the biggest canvas to paint on."

That canvas can include stocks in almost any tradable market; all types of fixed income securities from sovereign to corporate to high yield to asset-backed debt across the globe; real estate, usually in REIT form; commodities; derivatives; and currencies. Or not. Some global tactical funds that only invest in stocks or in stocks and fixed income may tactically hedge currency or have the latitude to short; thus the "tactical" aspect of the funds. Different from global "growth" funds, global all-asset funds aim to use flexibility to achieve high "risk-adjusted returns," often, but not always, benchmarking against a 60/40 stock/bond portfolio. Most do include fixed income.

McDevitt warns, "These funds aren’t terribly tax efficient because they hold a lot in fixed income."  The burden is on the investment advisor to do the homework to understand what a given fund invests in and how the "tactical" part of the investment process works.

World Allocation funds fall generally into two very broad buckets:

1. Fundamental Plus: Funds where the manager uses quantitative and qualitative research to develop a theory about how the macro-economic and policy environment will affect asset classes and then weights the portfolio depending on forecasts. Security selection may be bottoms up or indexed, depending on the fund.

2. Trend-Following: Momentum-based funds that scour markets across the globe for trading patterns that trigger buy or sell signals following rules-based strategies in proprietary computer algorithms.

CORE OR ALTERNATIVE

There is surprisingly little commonality between funds and a wide performance variation across funds. Funds that are long-only tend to position themselves as core long-term holdings for traditional accounts. Those that have the ability to go short fall into the "alternative" category and act as a way to diversify portfolio risk. Many global all-asset funds are fund of funds or fund of ETFs, and some mix direct investments with index or other fund investments.

Looking for a long-term track record?

One of the oldest and largest funds, BlackRock Global Allocation Fund (MDLOX), with $60 billion under management and a 20-year-plus track record, falls under the Lipper (a Thomson Reuters company) fund category called Global Flexible Portfolio Funds. The fund describes its strategy as a combination of "bottom-up fundamental security selection with top-down asset allocation." MDLOX has an after-fee 10-year average annual return of 7.61% compared to the Global Flexible Portfolio Fund category return of 6.67%. According to its fund fact sheet, MDLOX has "one third less volatility than world stocks."

MDLOX looks like a 60/40 stock/bond balanced portfolio on the surface. Halfway through 2014, it held 57.7% of its assets in stocks, 22.9% in fixed income and 19.4% in cash equivalents. But more than half its fixed income and stock exposures is in non-U.S. issues, and it holds a lot of cash. That is where the "flexible" or "tactical" aspect of a multi-asset fund is expressed. The fund shifts positions depending on its analysis of the investment environment.

This fluid repositioning raises one of the challenges for the investment advisor: keeping track of overall client portfolio exposures. Morningstar’s McDevitt emphasizes this point: "The trick with these funds is that they are intended as core funds. You are turning over a lot of responsibility for a client account to the manager. Depending on how rapidly the manager moves, you don’t always know where the client is invested."

But the benefit can come from a fund’s ability to be agile in so many different markets. And each fund expresses its view differently.

TREND FOLLOWING LONG AND SHORT

Jason Gerlach, CEO of Sunrise Capital and manager of a new ETF called MULT (AdvisorShares Sunrise Global Multi-Strategy ETF), explains the fund’s ambitious mission: "Most people want you to outperform the S&P. We want to outperform the S&P but with a .35 or .4 correlation."

MULT would be considered an "alternative" investment as it invests long or short in world stock and fixed income markets, currencies and index ETFs. Launched in June, the fund pursues a rules-based, actively managed strategy that has a long track record at Sunrise but is yet untested in the ETF. The momentum-based strategy performed well for Sunrise’s investors during 2008 when the model shorted markets during the downward free-fall, netting a 34.8% gain for the fund in that year.

Sunrise chief investment officer Chris Stanton adds, "Equity is not all we do. Few have a strategy for an impending potential bond crisis. We can do quite well if interest rates spike up and bond prices crumble."  When asked to compare the trend-following approach to a fundamental-plus approach to global multi-asset investing, Stanton suggests that advisors consider both.

"Optimally, there is room for both in your portfolio," he says. "Bottoms-up managers predict the future. I’m going to understand what’s happening in the market faster. We don’t need to resist the move. We have a set of systems nimble enough to react to an event. But have some good value guys in your book."

An interesting hybrid of fundamentals and quantitative strategies is PIMCO All-Asset Fund (PASAX), the only Morningstar Analyst Gold-Rated mutual fund in the World Allocation category. PASAX is a fund of PIMCO funds, managed by an outside advisor, Rob Arnott of Research Affiliates. The $34 billion All-Asset fund falls under Lipper’s Flexible Portfolio Fund category. PASAX fell 16.57% in 2008 compared to the Lipper Index’s 26.58% decline. The defensiveness of this long-only fund is characteristic of Arnott, a well-known financial market theoretician and practitioner, chairman and CEO of Research Affiliates. John Cavalieri, PIMCO executive vice president and product manager overseeing the All-Asset Fund, explains that PASAX leans toward value.

"Our ethos is one of contra-trading — owning things that are uncomfortable or feared and loathed in the market because that is where the value is," he says. The fund’s assets have grown even though this contra-trend strategy resulted in a half-percent loss for the fund in 2013 (after expenses, which vary depending on the class but are about 2.25% annually).

PASAX’s 10-year average annual return is 6.88%. In 2014, the fund is up more than 6%, and Cavalieri makes the case that the large positions in less-loved asset classes like REITs and emerging market bonds and stocks will serve investors well in a U.S. stock and/or bond market correction. "We think this is the time. We think the stock and bond market’s best days are behind them," Cavalieri says, adding that PASAX is poised to "have a meaningful prospect of outperforming a 60/40 blend."

A sister fund, PIMCO’s All-Asset All-Authority (PAUAX), invests similarly to the All-Asset Fund, but can short up to 20% of the fund and can borrow to invest up to 150% of total assets. PAUAX protected investors in 2008, dropping 7.52% but rebounding in 2009 with an 18.65% gain, suggesting this fund might be suitable for investors looking to add a long/short option to their portfolio. The fund has a Morningstar Analyst Rating of Silver in the Morningstar "Tactical Allocation" category.

However you name these flexible funds, they are worth a look. For advisors who would like to add positions to client portfolios in emerging markets, fixed income outside the U.S., or tactically to overseas stock markets, finding a tested fund in global all-asset can offer growth, diversification and risk management in one package. To put all of those pieces in a client portfolio one by one is challenging.

Says McDevitt: "Because you are talking about the entire global landscape, it lends itself to top-down strategies."

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