This fund isn’t one that I’d invest in personally but it certainly has a following. The Columbia Thermostat Fund (COTZX) has $1.3 billion in total net assets, which is almost as much as LEXCX, my favorite fund of all. It must be doing something to attract all this money.
This is a “fund of funds,” which invests in other Columbia Management funds. The key to its investment strategy is that it allocates at least 95% of its net assets among a group of stock and bond mutual funds according to the current level of the S&P 500. As the S&P 500 has risen the last two years the percentage allocated to stock funds has dropped while the bond fund allocation has gone up. It’s specifically designed for those who aren’t sure where the market’s headed and prefer a pre-set program to make the allocation decisions. At the current time bonds represent 84% of its portfolio, which is adjusted after every 50-point move up or down in the index.
Seriously overweight in bonds, the fund is up just 8.8% year-to-date compared to 27% for the S&P 500. In the longer term (five- and ten-year periods), it has more or less kept pace with the index. Conservative investors aside, this fund is perfect for those who see a serious correction in the price of stocks. As the index starts falling, it starts buying. It’s a unique approach that in some ways resembles the glide path of a target date fund as it nears its retirement date.
The only difference is that a target date fund eliminates or seriously reduces its stock position regardless of the index’s direction while the fund increases its stock weighting as the index falls. Don’t buy it if you’re nearing retirement and can’t handle any risk whatsoever.