Newspaper article St Louis Post-Dispatch (MO)

Funds Mix Assets to Cut Risks Putting All Your Eggs in Several Baskets

Newspaper article St Louis Post-Dispatch (MO)

Funds Mix Assets to Cut Risks Putting All Your Eggs in Several Baskets

Article excerpt

Peter Van Dyke, a mutual fund manager at T. Rowe Price Associates Inc., says he's reluctant to buy stocks because he thinks the market could fall 10 percent from where it is now.

That's not the kind of talk that will help T. Rowe Price sell its stock mutual funds. Undaunted, the firm has started marketing funds designed to cut investors' losses when stock markets collapse.

Its so-called asset-allocation funds invest people's money in a mix of U.S. and international stocks, bonds and cash. "Our approach for these funds is that we're not making a big tactical bet on one market or another," Van Dyke said.

Asset-allocation funds aren't a new idea. But their number has doubled to about 100 in the past three years. Vanguard Group and Putnam Investments Inc. also have started such funds recently.

"Asset allocation is going to take off in the 1990s," said Gregory Knopf, managing director of Los Angeles-based Stepstone Funds. "People are realizing it's hard to be in the right market all the time, so that's where asset allocation comes in."

By spreading investors' money around, asset-allocation fund managers hope that if U.S. stocks fall, bonds or foreign stocks might rise. When all markets look bad, a nice hunk of cash will put a floor under the fund.

Less risk usually means less gain, however. In the past three years, asset-allocation funds were up 27.2 percent on average. In contrast, the average stock fund was up 33.3 percent, according to Lipper Analytical Services Inc.

So far in the falling markets of 1994, asset-allocation funds haven't done their job very well. The average asset-allocation fund is down 1.7 percent, while the average stock fund is only down 0.45 percent, Lipper said.

While the diversification of asset-allocation funds minimizes their risk, the success of the funds depends on how managers allocate their money. …

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