I've been thinking about asset allocation funds recently. For those unfamiliar, these are mutual funds (or separately managed accounts) that let the manager move with full discretion or within some range between equities, fixed income securities, cash and sometimes other assets.
I use one of these funds in a retirement account and, all things being equal, it has done well over a few tough up and down years. It has outperformed one account where I set the allocation among four managers (one bonds, one domestic equities, one international equities and global equities). Another account that I manage myself as well among a selection of funds performed much better than the asset allocation manager.
I'm at a point where I can allocate some capital again in a few different places and keep wondering whether I should pick a set of funds and allocate myself, or pick one (or more) asset allocation funds and let someone else do the driving. There is a strong temptation to do the latter, and rely on the manager to be nimble, to use tools not so accessible to me (shorting, currency trading) to gain some alpha, etc.
And yet with an actively managed asset allocation fund I really need to make sure that the manager and I see pretty eye to eye. I'm pretty bearish right now, interested in buying if (big if) I can find value, but frustrated by the ultra-low returns on my cash. Not a lot of managers are willing to sit on 25-35% cash waiting for another buying opportunity. On the other hand, my buy discipline is lousy, mostly because I get nervous and under buy, but also because I get busy with my real job.
I don't pretend to have a solution to my conundrum yet but figure I'm better off posting about it and getting something up on this woebegone old blog of mine. And if anyone has any ideas, by all means comment.