A global allocation fund is a mutual fund that contains a wide variety of different types of securities from around the world. Global funds are distinct from international funds because the latter include only foreign securities while the former contains securities from abroad and securities that are issued by domestic entities. Managers of global funds have more freedom to buy and sell different types of securities than the managers of other types of allocation funds.
Mutual funds have traditionally contained a mix of stocks and bonds. Aggressive funds contain mostly stocks which offer investors the chance for growth but are also risky because stocks can lose value quickly during market downturns. More conservative funds contain income generating bonds which are not risk free but are less volatile than stocks. Within a simple allocation model the fund manager has to ensure that the fund always contains a certain percentage of each type of security which often means that securities that perform well are sold and other securities that have performed less well are bought to replace these securities.
In a global allocation fund, the fund manager can change the funds make up at any time. If stocks are performing well the fund manager can sell all of the fund's bond holdings and buy more stocks or vice versa. Additionally, the fund manager can change the balance between domestic and foreign securities at any time. Therefore, the performance of a global allocation fund depends on the judgment of the fund manager rather than a predetermined investment strategy.
Initially, most recessions usually impact one particular nation or one economic region of the world such as the European Union (EU). The manager of a European stock fund could not sell the fund's European holdings in advance of the recession taking effect but the manager of a global allocation fund could replace all of the fund's European holdings with securities from another region of the world. In theory, shareholders of a global fund are less likely to feel the ill effects of a recession than investors with shares in another type of fund.
Diversity provides investors with a degree of protection but people who buy shares in a global allocation fund have have less control over their money than people who buy other kinds of funds. Someone seeking income may like the makeup of a global fund that contains mostly bonds at the outset but at any time the fund could change to a stock heavy fund. Furthermore, since global funds contain so many types of securities from so many nations, the shareholders may miss out on the levels of returns that investors get when they invest specifically in the best performing types of securities.