Morningstar Advisor - October/November 2013 - (Page 70)

Screens Stuck in the Middle Is Not a Bad Place to Be By Adam Zoll Allocation funds offer a break from trendy industry offerings. Our screen looks at these one-stop options for stock and bond exposures. With so much attention paid to selecting the right stock or bond fund, investors often seem to give short shrift to the humble allocation fund. These funds, formerly called balanced funds in the Morningstar lexicon, hold significant allocations to both stocks and bonds. Furthermore, they can act as a one-stop option for investors looking for a single investment vehicle to provide some of the return potential of stocks with some of the diversification and volatility-reducing qualities of bonds. (Of course, that bond exposure also brings with it interest-rate exposure, which could weigh on allocationfund performance if rates continue to rise.) Morningstar groups allocation funds into conservative (20% to 50% equity exposure), moderate (50% to 70% equity), and aggressive (70% to 90% equity) categories. 70 Morningstar Advisor October/November 2013 The biggest of these categories is moderate allocation, with more than 250 funds available. Given some of the uncertainty in the market right now we thought it made sense to construct a screen that shined a spotlight on moderate-allocation funds. After all, these types of allocation funds are designed to provide some of the performance upside of stocks with some of the downside protection of bonds. We conducted the screen in September using Morningstar Office. Morningstar Category And  Moderate Allocation Total Ret Annlzd 5 Yr  7.6 tion fund performance, we used Gold-rated Vanguard Balanced Index VBINX, which invests about 60% of its assets in a cap-weighted index of nearly all U.S. stocks while holding about 40% in the Barclays Aggregate Bond Index, a common fixed-income benchmark. The Vanguard fund has returned an annualized 7.6% the past five years through Sept. 4. Funds that made our cut had to meet or exceed that mark. For the sake of comparison, during that time the S&P 500 has returned 8.4% annually, while the Barclays Aggregate Bond Index has returned 3.7% per year. Morningstar Analyst Rating  Silver And First, we highlighted funds that have performed well through the ups and downs of the past five years. As a benchmark for moderate-alloca- And Oldest Share Class  Yes And Closed to New Investment  No

Table of Contents for the Digital Edition of Morningstar Advisor - October/November 2013

Morningstar Advisor - October/November 2013
Letter From the Editor
How to Make Social Media Work for You
Do Mutual Funds Still Have a Role?
More Personal Than Finance
How to Handle Your TIPS Positions
A Real Estate Veteran Starts From Scratch
Investments á la Carte
Investment Briefs
When to Say No
Take a Guarded Approach to Homebuilders
Fund Distribution Has Been Turned on Its Head. Now What?
Winning the Distribution Battle
Active ETFs Wait for Their Heyday
A Fund Firm Defies Indexing Trend
Piloting New Channels
A Good Fit
The Predictive Power of Fair Value Estimates
Does Being Prudent Pay Off?
Utilizing Utilities’ Total Return
Stuck in the Middle Is Not a Bad Place to Be
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
The Good Guys Win

Morningstar Advisor - October/November 2013