Tags: buy | hold | tactical | allocation

WSJ: Buy and Hold Beats out Tactical Allocation

Monday, 05 Nov 2012 08:02 AM

By Dan Weil

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Tactical allocation mutual funds, which can take advantage of certain situations in the market by investing in any asset at any time, have been all the rage since the financial crisis.

But the tried and true strategy of buy and hold is working out better for investors, writes Wall Street Journal columnist Jason Zweig.

Tactical funds gained popularity because investors suffered huge losses in their stock portfolios during the 2008-09 financial meltdown.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

Morningstar follows 42 mutual funds and exchange-traded funds (ETFs) with "tactical" in their name, up from eight in 2007. The funds now have $4.3 billion of assets, with 20 percent coming in this year alone.

But their returns are mediocre — averaging only 4.9 percent annually over the last three years, more than 6 percentage points less than their benchmark indices.

Meanwhile, the classic balanced portfolio of 60 percent stocks and 40 percent bonds has returned 10.4 percent annually during the past three years.

Tactical funds should do better during bear markets, when they can easily sell out of declining assets, than in bull markets.

"The last few years [of rising stocks] have been pretty daunting for our strategy," Ricardo Cortez of the Forward Tactical Growth Fund tells Zweig.

To be sure, investors on the institutional side apparently believe in tactical allocation.

In a poll of pension fund managers conducted by Pyramis Global Advisors, 70 percent maintain that picking the right market or region will represent the main source of future returns, according to Bank Investment Consultant.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

© 2014 Moneynews. All rights reserved.

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