Top-performing stocks have historically rotated between various sectors and investment styles, and as a result, investors have become indoctrinated in using style boxes as key criteria for selecting mutual funds and planning their portfolio.
But that seems to have changed in recent months, The Wall Street Journal reports.
Investors appear to be heeding economists' and fund managers' predictions that the stock market will return single digits for the next few years, with pockets of growth turning it largely into a stock-picker's market.
Increasingly, they are turning to all-cap, or multi-cap or "go-anywhere," funds, which can invest in companies of any market capitalization or investment style. All-cap funds were the best-performing category in 2005, according to Lipper, returning 17% versus 14% for large-cap funds. They also took in an impressive amount of money, $67 billion--three times the amount of the next bestselling category, midcap. Large-cap funds, meanwhile, had outflows of $92 billion.
"What's driving people to them is they're cautious [and looking for] a good middle bet," Don Cassidy, senior analyst with Lipper, told The Journal. "Investors, consultants and financial advisers are starting to wake up to [all-cap because] they're looking for returns," added Alex Motola, manager of the Thronburg Core Growth Fund.
But investors who want to maintain a diversified portfolio need to pay attention to how all-cap funds can upset that balance, leaving them over-weighted in various styles, sectors or individual stocks, financial planners warn. All-cap funds can also be volatile, largely because of an overweight in small-cap stocks, which tend to be risky.
And, because of their newfound popularity, many of them are new and don't have long track records by which to judge them. In the past two years, the number of multi-cap funds rose 21% from 595 to 720, according to Lipper.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.