PIMCO’s All Asset All Authority institutional fund received a Gold rating this week from Morningstar Analyst Ratings. The PIMCO fund, managed by sub-advisor Rob Arnott of Research Affiliates, “had its many moving parts moving in sync in 2011,” according to a report by Morningstar analyst Kevin McDevitt.

The leveraged fund of funds generated 6.8% return year-to-date, and slightly more than 3% last year – placing it in the top 10% of performers last year, according to McDevitt, who attributed the performance to Arnott “deftly navigating choppy global markets,” extensive diversification and conservative valuations.

Arnott’s fund doesn’t allocate assets according to a predetermined blend of shares of the underlying PIMCO funds. Instead, when making allocation decisions among the underlying funds, he considers various quantitative and qualitative data relating to the U.S. and foreign economies and securities markets.

McDevitt, however, notes a number of risks in Arnott’s strategy. Because it sticks exclusively with PIMCO funds, it could be vulnerable to any errors in firm-wide views on investing. Another issue is the fund’s use of leverage, currently equivalent to about 30% of net assets. Moreover, Arnott tends to favor funds in fairly illiquid areas and as the fund continues to grow, it could actually hurt some of its underlying funds.

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