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  • Home>Research & Insights>Fund Screen>No-Hesitation Allocation Funds

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    No-Hesitation Allocation Funds

    Target-date funds have grabbed the spotlight (and assets), but this screen can root out allocation funds upon which you can rely.

    Greg Carlson, 04/06/2012

    This article originally appeared in the April/May 2012 issue of MorningstarAdvisor magazine.  To subscribe, please call 1-800-384-4000. 

    Allocation funds haven’t been too popular lately. Investors looking for broadly diversified investments have instead latched onto target-date funds, which tend to own a wider range of securities and conveniently downshift away from equities as investors near retirement (and have made big inroads into retirement plans). However, allocation funds can still be appealing; they often highlight the abilities of one manager or team, while target-date funds typically spread their assets among a large number of managers.

    Morningstar divides allocation funds into four categories based on their level of equity exposure and exposure to non-U.S. stocks: aggressive allocation (70%–85% stocks), moderate allocation (50%–70% stocks), conservative allocation (20%–50% stocks), and world allocation (at least 40% in non-U.S. equities and at least 10% in bonds). This Morningstar Principia screen helps identify funds from these categories that boast experienced managers, modest costs, and fine records while keeping risk in check.

    (   Morningstar Category =  Aggressive Allocation
    Or Morningstar Category =  Moderate Allocation
    Or Morningstar  Category = Conservative Allocation
    Or Morningstar  Category = World Allocation  )
    And Special Criteria = Distinct Portfolios only
    And Purchase Constraints  does not equal  Closed-New Investment 
    And Purchase Constraints  does not equal  Qualified Access
    And Min. Initial Purchase   <=  $10,000
    And Analysis does not equal NA

    Start by narrowing down the funds in the four categories to those that are widely available, don’t have high minimum investments, and are covered by Morningstar’s fund analysts.

    And Manager Tenure (Longest) >= 5 years
    And % Rank Category 5 year <= 25

    The next step is to limit the pool of candidates to funds where at least one manager’s been at the helm for five years and that have outpaced a minimum of three fourths of their category peers over that period. While we have sometimes extended these criteria to 10 years, the tumultuous market environment of the past five years makes for an impressive proving ground for investors.

    Greg Carlson is a fund analyst with Morningstar.