| Balanced funds are not created equally. The | | | | into the strategy. As one asset class or, more |
| reason for this is simple; no two people really | | | | probable, as a group of specific assets grow |
| want the same thing. This makes sense. Some | | | | outside of their strategic, designated maximums. |
| investors want active management in terms of | | | | With those excess gains, the manager will then |
| picking the right assets because they do not have | | | | have to decide where to invest those gains |
| the time or know-how to pick those stocks for | | | | (likewise, in periods of steep downturns, the |
| themselves. Other investors know that security | | | | manager must decide where to take funds to |
| picking is not always a winning strategy and as a | | | | shore up those deviations as well). |
| result want their mutual fund manager to adopt a | | | | Tactical Balanced Funds |
| more of a buy-and-hold strategy and to manage | | | | Unlike the strategic format, tactical balanced funds |
| their portfolio in a way that they are never | | | | will make tactical purchases throughout the |
| over-exposed to any given asset class at any | | | | investment period. Assuming the fund manager's |
| time. | | | | mandate is to exceed market returns by 2%, the |
| Strategic Balanced Funds | | | | tactical asset manager will have to decide which |
| As the name implies, strategic balanced funds | | | | securities to hold and to what degree based on |
| take a strategic approach to managing their | | | | market, economic, political and other indicators he |
| assets. In plain English this simply means that | | | | or she may rely upon. |
| investment managers will determine their strategy | | | | For example, a fund manager who might be |
| up front and will stick to it throughout the | | | | nervous about a market correction might reduce |
| investment process. | | | | the fund's equity holdings and opt instead to |
| To illustrate how this would typically work, | | | | increase the fund's income holdings. So, instead of |
| consider a fund manager whose mandate is to | | | | sticking to, say, a 40/60 split like the manager in |
| achieve long-term, sustainable growth. Based on | | | | a strategic program wound, the tactical manager |
| this mandate and his or her belief that over the | | | | might switch from 40/60 to 80/20 (or vice |
| long-term certain asset classes will perform in | | | | versa) depending, again, on the fund manager's |
| predictable ways, the manager might decide on an | | | | reading of the indicators he or she follows. |
| asset weighting of 40% Bonds and 60% Stocks. | | | | Evidently, a strategic approach appears more |
| This becomes the fund's strategy - a 40/60 split | | | | conservative in that the asset weighting never |
| with no exceptions. | | | | deviates. However, in periods of sharp declines, a |
| Of course, within this strategy can be other | | | | tactical asset manager is better able to protect |
| strategies, such as which types of stocks to own | | | | the fund assets without seeing further decay. The |
| to make up the 60% and what kinds of bonds to | | | | key to whether a fund manager is successful as |
| make up the remaining 40%. Ultimately, however, | | | | a strategic investor is based almost entirely on |
| the manager will not deviate from this 40/60 split. | | | | how well he or she (or his or her team) can pick |
| That means that the manager's job will be more | | | | securities. |
| about making sure that the assets continue to fit | | | | |