8
Tactical asset-allocation shifts are notoriously difficult
to execute well year-in and year-out, but we’ve
identified five managers who have proved to be skillful
allocators over the long run. Here we take a close
look at how each of our favorite allocators positioned
their funds as of the end of
2012
. Broadly speaking,
the managers prefer equities over bonds, but how they
invest within each of those asset classes differs.
The Managers and Their Many Flavors of
Tactical Shifts
All of these managers make allocation shifts in their
funds, but the rationale, timing, and extent of their
shifts vary. The asset-allocation committee at T. Rowe
Price, headed by Rich Whitney, has made successful
tactical shifts in various funds since
1990
. The team
oversees the tactical positioning in the Gold-rated
T. Rowe Price Retirement target-date funds, as well
as in the firm’s Silver-rated Personal Strategy and
Spectrum funds.
JP
Morgan also has an experienced
allocation group that implements tactical shifts in the
firm’s Silver-rated
JPM
organ SmartRetirement target-
date funds. Both the T. Rowe Price and
JP
Morgan
teams rely primarily on the long-term strategic alloca-
tions of their funds, using small tactical adjustments
to supplement returns.
Our list also includes
GMO
’s Ben Inker, who has run
Silver-rated
GMO Global Asset Allocation
GMWAX
since
1996
, and BlackRock’s Dennis Stattman, who
has led Gold-rated
BlackRock Global Allocation
MDLOX
since
1989
. These two managers pay particular
attention to valuations at the asset class and indi-
vidual security level, and they have ample freedom
to differentiate their portfolios from their benchmarks.
Lastly, we think highly of Rob Arnott at Research
Affiliates, who has subadvised Gold-rated
PIMCO All
Asset
PASDX
and Silver-rated
PIMCO All Asset
All Authority
PAUDX
since
2003
. (The latter makes
use of leverage, while the former does not.) Arnott
has no predefined benchmark allocations but instead
aims to beat inflation by
5%
annualized for
PIMCO
All Asset and
6
.
5%
annualized for
PIMCO
All Asset
All Authority over a market cycle, investing across
all segments of the market.
The Big Picture: Stocks Versus Bonds
For two of our favorite asset allocators, the call on
stocks is a straightforward relative value decision.
As of Dec.
31
,
2012
, both T. Rowe Price and
JP
Morgan
have tilted their portfolios toward equities and away
from bonds. T. Rowe has a slight
2%
overweighting to
stocks and a
2%
underweighting to bonds across
its allocation funds. The firm’s allocation team believes
stocks trade at reasonable valuations but appear
more attractive than the unfavorably low yields offered
by bonds.
JP
Morgan’s allocation team has a roughly
4
.
5%
overweighting in stocks in its target-date
funds and a
4
.
5%
underweighting to its fixed-income
target weighting. The team believes the improving
global economy has created a favorable environment
for equities.
Unlike the target-date series, BlackRock’s Dennis
Stattman and
GMO
’s Ben Inker can be more flexible
by holding cash or alternative strategies. Stattman
positioned his fund with a slight
1
.
6%
overweighting
to stocks relative to his benchmark’s
60%
stake
at the end of
2012
. He says, “Stocks, on a cyclically
adjusted basis, are not absolutely cheap, but they’re
pretty much the only game in town. I would have
more equity exposure, but valuations are stretched
with margins at peak levels.” Stattman invests
just
24%
of the fund’s assets in fixed income compared
with the benchmark’s
40%
weighting, reflecting
his concerns about the bond market’s low yields. The
fund has a
14%
stake in cash equivalents, which
Stattman uses as a source of ballast and dry powder
for when more-attractive opportunities arise.
His team also uses that stake to manage the fund’s
currency exposure.
Similarly, Inker has light exposures to both equities
and bonds, but with a substantially more negative
view on bonds. His fund’s
13%
stake in fixed-income
is well below its benchmark allocation of
35%
,
while the portfolio’s
60%
equity stake is slightly below
Allocators Place Their Bets
Morningstar Research
|
David Falkof
