Makeup of ‘all-cap’ funds varies

NEW YORK – Investors looking to all-cap funds as a simple way to immerse themselves in variety of stocks might consider that “all” in some cases can really mean “most,” as in “all-expense-paid vacation” or “all solid gold.”

To be fair, the variations among all-cap funds reflect divergent philosophies and not the flimsy promises offered by, say, trench-coated entrepreneurs selling watches of dubious origin. So while all-cap funds weren’t designed to deceive, investors nonetheless should consider that some funds take more pains than others to remain rooted in “all” corners of the stock market. Others keep holdings in stocks of various sizes but focus on areas deemed likely to outperform.

Those that shift their weighting might now tilt toward large-capitalization stocks and away from small-cap stocks as the big names now appear to be outpacing smaller stocks for essentially the first time since the start of the decade.

“There are a lot of different flavors of all-cap funds,” said Todd Trubey, an analyst at investment research provider Morningstar Inc., describing all-cap funds as often reflecting either “go everywhere” or “go anywhere” philosophies.

“Some of them are basically just market-cap agnostic and therefore those types of funds may not move very much. At the same time, there are managers who look at valuations and do try to position the fund more opportunistically.”

Portfolio managers with a so-called agnostic approach to market capitalization, tend to give little consideration to a company’s size.

He noted that the go anywhere philosophy embraced by some all-cap fund managers makes their stock-picking abilities important.

“For a go anywhere fund where the manager is agnostic about stock size then you want to know that the manager has a good record and a good strategy for that style,” Trubey said.

“They will move around a lot and that’s not a bad thing. You have to know what you’re getting there in order to use the fund well.”

Despite their ability to cover large ground, fees at all-cap funds don’t tend to be out whack with those of other funds. In fact, they’re often in line with the low fees often seen in large-cap funds.

Trubey noted that a fund such as the Weitz Hickory fund doesn’t feel constrained to remain equally balanced among various stock sizes. The fund has shown a return of about 4.4 percent this year and has a three-year annualized return of 14.9 percent and a five-year annualized return of 10.3 percent.