BusinessWeek – For nearly two decades, equity mutual funds have been boxed in. That’s because marketers have been packaging funds by investment styles such as small-cap value or large-cap growth at the behest of pension consultants and financial advisers who want to fine-tune their asset allocations.
Yet a small group of funds can pick and choose securities from all corners of the equity universe. Now these funds, which are called all-cap funds, are outperforming their style-specific peers and attracting attention from both individual and institutional investors. “People are looking outside the box,” says Don Cassidy, senior research analyst at Lipper (RTRSY ), the fund-tracking unit of Reuters (RTRSY ).
The numbers are compelling. All-cap funds, also known as multicap or go-anywhere funds, beat their U.S. diversified-equity peers during the one-, three-, five-, and 10-year periods ending Jan. 31, 2006, according to Lipper. The outperformance is most dramatic in the 12 months ended on Jan. 31, when all-cap funds gained an annualized 16.9% vs. 14.4% for U.S. diversified-stock funds.
What gives all-caps the performance edge? Cassidy likens them to the sort of hedge funds that let managers run with their best ideas, “giving the portfolio manager a wider playing field,” he says. That flexibility often results in steadier returns and lower volatility.
