Problem with fund? Then fund of funds might be answer

Best of type offer good management and diversification

Dollars & Sense

May 19, 2002|By Russel Kinnel | Russel Kinnel,MORNINGSTAR.COM

Did you sell your value funds in 1999? Did you go a year before finding out about a manager change at one of your funds? Will it be years before you have saved the five figures you need to build a diversified lineup of funds?

If you answered "yes" to any of these questions, then a fund of funds might be for you. The best funds of funds offer diversification, professional management and the willpower to stay diversified regardless of market trends.

Shopping for a fund of funds is pretty simple. First, decide whether you want a fund with a set asset mix or one with a target retirement date where the manager will gradually shift assets into income-producing securities as the retirement date draws near.

Next, look for low costs. Many funds of funds don't charge anything beyond the costs you have to pay for the underlying funds. Finally, pick a fund committed to a stable asset mix.

To save you even more time, I'll toss out a few ideas. Each fund I'll mention is part of similar funds with different asset mixes. You can shop for a different mix within these funds by typing in the first two words of a fund's name in our Quicktake Reports box and that will pull in all the funds in the group.

Fidelity Freedom 2020 (FFFDX): The 2020 refers to the target retirement date. For 0.08 percent plus underlying fund costs, you get a well-rounded mix of actively managed Fidelity funds, including bond funds, foreign-stock funds and domestic-stock funds. The domestic-stock funds have a mix of small-cap growth and value stocks and large-cap growth and value stocks. Performance has been pretty good, thanks to solid performance at almost all the funds in the portfolio.

Vanguard LifeStrategy Growth (VASGX): If you like indexing or value diversification, this is the choice for you. It invests fixed amounts in three giant indexes covering U.S. stocks, foreign stocks and bonds. In addition, a quarter of assets are in Vanguard Asset Allocation (VAAPX), which invests in a mix of the S&P 500 and Lehman Brothers Aggregate.

Asset Allocation will shift the mix of those two asset classes, but 75 percent of the fund always remains in the other indexes, so any shift would have a moderate impact on the overall mix. You pay only for the underlying funds' expenses, which range between 0.20 percent and 0.44 percent.

Schwab MarketManager Balanced (SWOBX): If you prefer a bolder play on active management in fund and security selection, the Schwab MarketManager funds are worth a look. The portfolio mix has some bold investors such as Bill Nygren of Oakmark Select (OAKLX) and Sam Stewart of Wasatch Core Growth (WGROX). This one costs more, however. Its expenses are 0.50 percent, and many of the funds it invests in charge more than Fidelity's and Vanguard's funds of funds. But the fund has had fine results.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.