Morningstar Advisor - December 2013/January 2014 - (Page 62)

Gray Matters Family Blind Spots By Russel Kinnel A firm's mutual funds tend to share characteristics. Here's how to diversify a portfolio laden with one family's offerings. Mutual funds within large fund companies often share investment traits, and they sometimes perform in lockstep for good and bad. For example, over the summer, PIMCO's bullish bet on long-term inflation-protected securities in a bunch of its funds stung investors. Interest rates rose while inflation expectations fell, a double whammy for long-term Treasury Inflation-Protected Securities. It wasn't a disaster for PIMCO, but it did take a bite out of a wide swath of its funds. 62 Morningstar Advisor December/January 2014 PIMCO's macro calls such as this one are often included in a bunch of PIMCO's bond funds. In addition, PIMCO runs asset-allocation funds that own a number of its bond funds, so it affects them, too. It also can have an impact on stock funds such as PIMCO StocksPLUS PSTKX, where the strategy is to buy index futures and try to add value with a fixedincome portfolio held as collateral against those futures. The mistimed bet hasn't shaken our faith in PIMCO because it has had more winning bets than losing ones over the years. And its TIPS bet wasn't nearly as scary as Janus' firmwide Internet bet in 2000. Still, there's no need for investors to make a firmwide bet into a bet across their own portfolios, and this goes for even the best of fund companies. So, how do you diversify a portfolio heavily skewed to one fund company? First, look for the firm's blind spots; then, search for funds from other companies to fill in the gaps. Here's a look at the limits that some of the largest fund companies have and ideas for funds that would make nice complements to a

Table of Contents for the Digital Edition of Morningstar Advisor - December 2013/January 2014

Morningstar Advisor - December 2013/January 2014
Letter From the Editor
What’s Your Purpose?
Working for Gen Y
How to Allocate College Savings
Mobius Looks to a New Frontier
Investments á la Carte
Investment Briefs
How to Manage Bonds for Today and Tomorrow
Cloud Is the New Engine of Growth
Knowing Where to Look
Economic Vulnerability Varies by Country
Factor Investing in Emerging Markets
Following the Rules
Exploring Indexing’s Next Frontiers
Frequent Fliers
Family Blind Spots
Optimal Portfolios for the Long Run
Finding Value in a Pricey Sector
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
The Emerging-Markets Roller Coaster

Morningstar Advisor - December 2013/January 2014