One Fund to Own It All
If you resolve to own only one mutual fund, a global balanced fund would be a strong candidate. Though domestic balanced funds will throw a few foreign securities into their mix of stocks and bonds, you'll need a global fund to pursue all of the world's stocks and bonds, estimated to be worth $120 trillion. Given the composition of the globe's markets, a perfect cross-section would look like this: 14% U.S. stocks, 18% foreign stocks, 30% U.S. bonds and a whopping 39% in non-U.S. bonds.
That allocation seems wacky. Maybe that's why Vanguard, which offers excellent index funds that cover the full spectrum of U.S. and foreign stock and bond markets, doesn't have a global balanced index fund. You could take several of Vanguard's broadest index funds and effectively assemble a global balanced portfolio, but that breaks the one-fund-does-all concept.
Unfortunately, there's a dearth of good all-encompassing fund picks, whether indexed or actively managed.
The standout, BlackRock Global Allocation, comes with a hefty sales fee. It beat its peers with an 8.5% annualized gain over the past ten years through August 10. Its A shares (symbol MDLOX) lost 11 percentage points fewer than the average global balanced fund from the market's October 2007 peak through its March 9 low-shedding 30%. That record (and its highly experienced manager) makes it a good choice as long as you invest through an adviser who can get you in without the sales charge.
Do-it-yourselfers have the perfectly competent Fidelity Global Balanced (FGBLX), by far the best no-load offering. Its 5.6% annualized gain over the past decade lands it in the middle of the pack. Its 35% loss through the 2007-09 bear market saved investors six percentage points compared with the average similar fund and 20 points compared with Standard & Poor's 500-stock index.
Co-managers Ruben Calderon and Geoff Stein make the big-picture calls about asset allocation. Then a team chooses the individual stocks and bonds. Fidelity measures the bond side of the fund against an index of developed-market government debt. That means the bond portfolio, typically 40% of the assets, leans to high-quality bonds with a heavy foreign component-at last report, it held $3 of foreign bonds for each $1 of U.S. debt. That should give you some comfort if you're concerned about a falling dollar.
Nearly all of Global Balanced's foreign exposure -- both among stocks and bonds -- is in Europe and Japan. Calderon thinks emerging markets present compelling opportunities, but to keep the fund from being too volatile, he won't stash more than 6% of its assets in stocks from developing nations.
Another inexpensive option is the only exchange-traded fund this category offers to U.S. investors. It is PowerShares Autonomic Balanced NFA Global Asset Portfolio (PCA). The fund, which invests in a basket of fairly run-of-the-mill ETFs, is extremely well diversified, with developed and emerging-markets holdings and a broad range of bonds. However, this young ETF hasn't covered itself in glory. From its inception in May 2008 through August 10, it lost 23.5%, nearly four percentage points worse than the average of its peer group.
This ETF with the ungainly name isn't likely to blow up, but neither is it seasoned enough to be the only fund you own. Let's hope more fund companies introduce low-cost and well-designed global balanced funds, both traditional and exchange-traded. The concept makes sense. But for now, the selection is limited.