Go Worldwide With T. Rowe Price Global Allocation
This one-stop fund provides instant diversification.
Building a diversified portfolio is a snap with a world allocation fund. These funds, including T. Rowe Price Global Allocation (RPGAX), invest in a mix of stocks and bonds across the globe.
"We view the fund as a core holding," says Charles Shriver, one of the fund's two managers. "It's a one-stop shop."
Shriver and his co-manager, Toby Thompson, make the big-picture calls of how to position the portfolio. They start with a target of 60% U.S. and foreign stocks, 29% U.S. and foreign bonds, and 11% alternative investments, then tilt the fund toward certain asset classes – large- versus small-company stocks, say, or growth versus value, or emerging-markets versus developed-world stocks or bonds – depending on their view of the world.
The managers leave the bond and stock selection to the firm's specialists and a deep bench of research analysts. Alphabet (GOOGL), Amazon.com (AMZN) and Microsoft (MSFT) are the fund’s biggest stock holdings; short- and long-term Treasuries are its biggest bond positions. For small stakes in certain asset classes, Shriver and Thompson may invest in another fund. "In floating-rate loans, for example, a fund offers instant, broad diversification and liquidity," says Shriver.
The system has worked well. Over the past five years, the fund has returned 10.8% annualized, which beat 93% of world allocation funds. In every full calendar year since its launch in mid-2013, the fund's returns have ranked among the top third or better of its peers.
The fund's alternatives segment consists of a hedge fund of funds run by asset management firm Blackstone (7% of assets at the end of 2020) and a stake in T. Rowe Price Dynamic Global Bond fund (4% of assets), which has a flexible investment mandate. The bond fund is a low-volatility diversifier, says Shriver. "In a rising-rate environment, traditional bonds may not be as defensive as they have been historically."
For now, Shriver says the fund has a "modest underweight" position in stocks – 54% of assets – with 33% in bonds and the rest in alternatives and cash. The managers have balanced that with floating-rate loans, which will benefit from rising rates, and short-term inflation-protected securities as a hedge against inflation.