How 3 Funds Sidestepped a Market Thumping

How 3 Funds Sidestepped a Market Thumping


Mr. Almeida said his R.E.I.T. bet stemmed partly from a presentation made by Richard R. Gable, portfolio manager of the MFS Global Real Estate Fund. “Rick was saying the R.E.I.T. sector was the cheapest it’d been, relative to financials and the rest of the equity market, in years,” he said.

Among R.E.I.T.s, Mr. Almeida said, MFS prefers those “with properties that are really hard to replicate.” His fund’s top real estate holdings include the Simon Property Group, the United States’ largest shopping-mall owner, and AvalonBay Communities, an apartment owner that is strong in coastal urban markets.

The American Funds College 2024 Fund and College 2027 Fund also buy both stocks and bonds. The two target-date college funds don’t invest directly in those securities but do so through other funds in the American family, which is managed by the Capital Group. Both college funds, for example, hold shares of the American Mutual Fund and the Bond Fund of America, which have been part of the American lineup for decades.

The college funds are investment options in CollegeAmerica, a 529 college-savings plan sponsored by the state of Virginia. (That “529” refers to a provision of the United States Internal Revenue Code, and anyone can invest in the funds, not just Virginians, though the tax benefits may differ for people in other states.) The 2024 fund lost 1.27 percent in the fourth quarter, while the 2027 fund lost 3.26 percent. The 2024 fund has an expense ratio of 0.73 percent, while the 2027 has one of 0.8 percent.

Wesley K.-S. Phoa, principal investment officer for American Funds’ target-date college funds series, said the funds’ bond investments didn’t carry excessive credit risk or unexpected correlations with the stock market, while the stock investments emphasized sturdiness, not sizzle. “We’ve picked stock funds that focus on solid blue-chip dividend payers, and that has delivered the resilience we hoped it would,” he said.

Mr. Phoa said college funds present an unusual asset-allocation challenge in that investors — often parents — are seeking the savings growth that stocks can bring but they typically have only about 15 years to achieve that. That gives them less time to ride out down markets, like the fourth quarter’s thumping.

“Most parents make steady modest contributions, and a lot start when their kids are 6 or 7,” he said. “When you’re putting in modest amounts, you want to get as much growth as you can. So we’re pretty growth oriented for a young beneficiary. But once you get within a couple of years in college enrollment, that’s the last thing you want. So at this stage, we’re invested very conservatively.”



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