Investors have poured $12 billion into world allocation funds this year through April, up 28% from last year, as more financial advisors recommend these highly adaptable global investment vehicles.
Fifteen world allocation funds have launched this year, compared with an average three or four new funds per category every year. World allocation funds mix global stocks, bonds, currencies and alternative assets and allow the fund manager to respond to market conditions by switching between regions and countries. Many are not tied to the weightings of traditional indexes.
“Investors like the idea that they’re not stuck in something if that strategy doesn’t continue to work,” Mike Avery, co-portfolio manager of the Ivy Asset Strategy fund, told Smart Money.
Some world allocation funds carry added risk in the form of complex strategies such as derivatives, and active management carries risks tied to manager error.
Still, many investors are attracted to the flexibility of world allocation funds, so advisors should consider researching these funds to see if there is a good fit with specific clients, perhaps those with a higher risk tolerance.