Asset allocation funds do the choosing for you

Andrew Leckey

May 19, 1993|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Here: You do it.

That's what millions of American investors are saying as they throw up their hands in consternation over market, economic and taxation worries.

So they let professionals divide up their investment pot for them, making the decisions that seem to grow harder each day.

Asset allocation funds are the buzz term in this uniquely 1990s process. Such funds permit portfolio managers greater autonomy in selecting the proportion of stocks, bonds and money-market instruments than the traditional balanced fund has allowed.

These do-it-for-me funds, recently mushrooming to around 65, are attracting millions of dollars pulled out of low-yield bank instruments.

For example, $25 million in investment money is pouring daily into the three asset allocation funds run by Robert Beckwitt at Boston-based Fidelity Investments, accounting for 16 percent of every dollar that goes to Fidelity. That compares to $10 million a day last year.

"The first-time investor, who isn't prepared for that first market decline, is attracted to an asset allocation fund," explained Beckwitt, a youthful-looking 34-year-old who has succeeded in keeping volatility to a minimum even when his funds haven't matched the performance of the S&P 500.

"I don't normally have to have a certain weighting among investments, and I'm the one who worries about valuations, monetary policy and market sentiment, not the investor."

The $5 billion-asset Fidelity Asset Manager is up 6.6 percent in total return this year, on the heels of a 12.75 percent

performance last year, 23.64 percent in 1991 and 5.38 percent in 1990. Aimed at the novice investor, it currently has 50 percent of its portfolio in stocks, 35 percent in bonds and 15 percent in cash.

Meanwhile, the $645 million-asset Fidelity Asset Manager: Growth, up 7.05 percent in 1993, gained 19.08 percent last year. Targeting more aggressive folks, it lately has a mix of 70 percent stocks, 25 percent bonds and 5 percent money markets.

The $91 million-asset Fidelity Asset Manager: Income, up 7.35 percent, started up just last October. It's conservative, with 25 percent stocks, 40 percent bonds and 35 percent money markets.

Investors considering asset allocation funds must keep several factors in mind:

* Have a clear understanding of the goals and the strategy of the fund manager, since he or she will be given a freer rein than the typical manager who's tied to 100 percent investment in stocks or bonds, or a balanced formula. Manager opinions about interest rates or the market are crucial.

* Keep track of changes in goals or strategies. That's vital with any investment, but particularly with funds that can change relationships between investments dramatically.

* Don't use asset allocation as an excuse to forget about your investment because it's in someone else's hands.

Although Beckwitt has long favored domestic mid-capitalization stocks over larger issues, he recently put stronger emphasis on overseas investing because he sees Japan emerging from recession next year and Europe doing likewise in 1995. So the composition of his portfolios is much different from a year ago.

His domestic mid-capitalization stocks include BancTec Inc. in modular image processing stations, Cisco Systems in computer networks, Mesa Airlines and Comair Holdings in regional air carriers, and Good Guys Inc. in retailing.

Among foreign holdings, Beckwitt likes Japanese financial firm Nomura Securities, video game maker Sega Enterprises and retailer Tokyo Style. From Britain, his selections include British Steel and engine-maker Rolls-Royce. Other favorites are Bank of France and, from Italy, the telecommunications company Stet.

In domestic bonds, he favors long-term Treasuries and low-grade corporates, while his international bonds include higher-yield choices from Mexico and Europe. Money-market holdings feature large portion of short-term Mexican debt.

"I've been spending a lot of time telling people what I've been doing overseas, so they're not surprised," Beckwitt explained. "Most importantly, I'd like investors with a 'certificate of deposit mentality' to prepare for the concept of the 'down' year."

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