By: Eddy Silvera
Flexible funds usually target some universe of values; however, they can also have the flexibility to invest in all types of assets.
A Flex Fund or flexible fund is a mutual fund or other joint investment that has wide flexibility in making investment decisions and allocations. Flex funds can be US-regulated or offshore funds. These funds give the portfolio manager ample freedom to make portfolio investments. As a result, they are highly susceptible to style variations and can employ macro strategies such as sector rotation or macroeconomic hedging. Investors in these funds often invest based on the experience of high-profile managers rather than assignments from specific market segments.
A flex fund generally does not have critical investment criteria or requirements that the portfolio manager must follow. This gives the portfolio manager the opportunity to choose from a wide universe of investments. Managers can also more actively allocate investments based on market opportunities and conditions rather than specific investment requirements.
Flexible funds usually target some universe of values; however, they can also have the flexibility to invest in all types of assets. Similar to other market strategies, the fund will need to disclose details about its investment intentions in a prospectus.
The prospectus will only provide details on the broad universe in which the fund plans to invest, noting that its strategy has wide flexibility for investments. One of the key benefits of a flexible fund strategy is that your investments and allocations can change over time.
Mutual funds are generally tied to a particular style box, such as large cap growth or small cap value, which helps them reach a specific audience of investors.
Flex funds do not follow this standard approach, which makes due diligence even more important for investors.
The Fidelity Magellan Fund is one of the best known Flex Funds, thanks in part to Peter Lynch, who advocated a flexible investment strategy while managing the fund in the 1980s and early 1990s. The Fund has continued to pursue a Flexible investing style in your investment strategy with your subsequent portfolio managers. Peter Lynch advocated for broad market investment in a highly diversified portfolio of stocks. His portfolio had more than 1,400 companies. The Fidelity Magellan Fund still offers a very open management style, with no specific style restrictions for the manager to choose investments other than the equity universe.
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BlackRock offers a wide variety of flex funds for its investors, and many of its flex funds invest in international stocks. These funds give the portfolio manager the flexibility to invest in all types of investments from a particular region without a defined allocation or emphasis on style.
There are other Flex Funds in other countries such as China, Japan, Western Europe as well as other Asian and European markets. These funds are becoming more and more popular for those investors who are looking for alternative, variant and more flexible investment funds to take advantage of higher returns and new opportunities that are presented in the market. As discussed earlier, investors in these funds often invest based on the experience of high-profile managers rather than on specific market segment assignments.
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