Fund companies sometimes move many funds in lock
step for good and bad.
For example, over the summer,
PIMCO
’s bullish bet on
long-term inflation-protected securities in a bunch
of its funds stung. Interest rates rose while inflation
expectations fell, a double whammy for long-term
Treasury Inflation-Protected Securities. It wasn’t a
disaster for
PIMCO
, but it did take a bite out of a wide
swath of its funds.
PIMCO
’s macro calls such as this one are often
included in a bunch of
PIMCO
’s bond funds. In addi-
tion,
PIMCO
runs asset-allocation funds that own
a number of its bond funds, so it affects them, too.
It also can have an impact on stock funds such as
PIMCO StocksPLUS
PSTKX
, where the strategy is
to buy index futures and try to add value with a
fixed-income portfolio held as collateral against
those futures.
The mistimed bet hasn’t shaken our faith in
PIMCO
because it has had more winning bets than losing
ones over the years and this isn’t really a surprise.
PIMCO
’s
TIPS
bet isn’t nearly as scary as Janus’ firm-
wide Internet bet in
2000
, but there’s no need to
make a firmwide bet into a bet across your own port-
folio. These examples illustrate why you should
diversify out of even the best of fund companies.
So, how do you diversify a portfolio heavily skewed to
one fund company? This month I’ll take a look at
some blind spots or other limits that big fund compa-
nies can have, and I’ll share some ideas for funds that
would make a nice fit.
A PIMCO-Heavy Portfolio
Stock funds are the obvious complement to a
PIMCO
-
laden portfolio, but if you have most of your
money in fixed income, consider some non-
PIMCO
bond funds, too.
Municipal bonds are a small sliver of
PIMCO
’s busi-
ness, so let’s start there. A fund that doesn’t make
top-down calls but instead focuses on issue selection
would make a nice diversifier, so consider a fund
like
Fidelity Tax-Free Bond
FTABX
. You can also
lower your costs with the help of a Vanguard fund
such as
Vanguard Intermediate-Term Tax-Exempt
VWITX
. Even taxable bonds might be an area to
diversify. On the lower-risk side, I’d consider
Dodge
& Cox Income
DODIX
, which also focuses more on
issue selection and less on macro bets.
An American Funds-Heavy Portfolio
Although American Funds has fallen in investors’
minds, you can still build a pretty good portfolio with
its funds. It runs outstanding foreign- and domestic-
equity funds that are dependable and cheap. Don’t
avoid them if they are in your
401
(k).
However, the American Funds multimanager run-a-
ton-of-money-in-one-fund model hasn’t worked too
well for small caps or bonds. The multimanager
system doesn’t work well in bonds where one manag-
er’s views can undo another one’s bets or double
them. In addition, they just haven’t kept pace with the
competition when it comes to bond analytics. In fact,
Know Your Fund
Company’s Achilles’ Heel
Fund Reports
5
Artisan Global Value
Calamos Convertible
Oakmark International
Selected American
Morningstar Research
8
Delaying Social Security Gives
Your Portfolio Staying Power
The Contrarian
10
My Top Holdings
Red Flags
11
Is a Correction Coming in
Small Growth?
Market Overview
12
Leaders & Laggards
13
Manager Changes and News
14
Portfolio Matters
16
Rethink the Ballast in
Your Portfolio
Tracking Morningstar
18
Analyst Ratings
Income Strategist
20
FundInvestor 500
22
FundInvestor 500 Spotlight
23
Follow Russ on Twitter
@RussKinnel
RusselKinnel,
Director of FundResearch and Editor
FundInvestor
October 2013
Vol. 22 No. 2
Research and recommendatio s for the s riou fund investo
SM
Continued on Page 3
