What is an asset allocation fund?
An asset allocation fund is similar to a balanced fund in that it splits its investment between stocks, bonds and cash. Asset allocation funds actively move money between these asset classes. By attempting to “time” the “markets”, the manager hopes to obtain the best returns from both markets, while minimizing exposure to losses in weak markets. Of course, you run the risk that the manager will be in stocks before a big drop, or miss out on the gains of an unexpected stock market increase by holding too much in bonds or cash. Some asset allocation funds also try to determine which industries have the greatest potential for growth, and invest in stocks in those industries. Many asset allocation funds have wide jurisdiction to invest in other investments, such as foreign stocks and natural resources.
