Vanguard Asset Allocation Fund is one of the best, but it works very hard for its high status.
This isn't one of those hybrid funds that stand pat with set asset allocations. Many of those vehicles that heavily overweight stocks have been phenomenally successful in recent years. This fund, on the other hand, has exerted quite a lot of effort for its excellent returns.
Day-to-day manager Thomas Loeb has undeniably been helped along by the fund's S&P; 500 indexed stock portfolio and its Lehman Brothers Long-Term Treasury index bond stake. Nevertheless, Loeb deserves a lot of credit for his asset allocations. He typically changes the fund's asset mix several times over the course of a year, based on a quantitative assessment of economic data such as inflation rates and corporate-earnings reports.
For the most part, these moves have been extremely well-timed. For example, prior to late 1997's Asian-influenced stock-market slump, the fund had only 50 percent of assets invested in equities and 50 percent in bonds. This helped it hold on to gains made earlier in the year when it boasted a bigger equity position.
Loeb's ability to make accurate moves was put to an even greater test in 1998. Last year, he made 15 different allocation shifts because of volatile market activity. Included among Loeb's favorable moves last year was his sharp increase in stocks as prices corrected in the third quarter. This resulted in an 80 percent equity weighting and provided the fund with superb returns as the market made a dramatic recovery late in the year.
Intrigued investors will want to keep in mind that this active asset-allocation strategy carries some risk, as do its high-P/E stocks.
Loeb's recent results aren't just a fluke, though. The fund's long-term record is just as impressive, and its low expenses are virtually unbeatable.
Vanguard Asset Allocation
Fund managers: William Fouse and Thomas Loeb
Largest investment sector: Technology
Style: The fund's median equity investment is in value and growth stocks of companies with large market capitalizations. The fund's median fixed-income investment is in long-term bonds of high quality.
Total returns as of 10/1/99:
Year-to-date: -0.25 percent
One-year: 16.61 percent
Three-year annualized: 19.16 percent
Five-year annualized: 20.30 percent
Risk vs. domestic equity funds: Low
Morningstar rating: 4 stars
Sales charge: No-load
Phone number: 800-662-7447
Pub Date: 10/10/99