What is Malox?

The BlackRock Global Allocation Fund (MALOX) is a mutual fund offered by the world’s largest asset management company, BlackRock^[1]. Under the category, world allocation, the portfolio of the fund consists of equity, debt, and money market securities. The size of the fund is $25.8 billion. Launched in 1989, the multiasset class fund has a size of $9.16 billion^[2]. The current fund managers are Rick Rieder, Russ Koesterich, and David Clayton. Share classes in the fund are divided into Class K, Class R, Institutional, Investor A, and Investor C.

BlackRock Global Allocation Fund (MALOX)

The fund mainly holds equities and bonds, with the remainder in cash. Equities account for 67.3% of the fund, with the top holdings by weight being APPLE INC (2.21%), MICROSOFT CORP (1.99%), AMAZON INC (1.70%), ALPHABET INC CLASS C (1.43%), ISHARES RUSSELL 2000 ETF (1.23)^[3]. Technology and consumer discretionary are the major market sectors with 15.89% and 9.80% of the portfolio respectively.

Fixed income (bonds) accounts for 24.15% of the funds with the top holdings by weight being CHINA PEOPLES REPUBLIC OF (1.28%), CHINA PEOPLES REPUBLIC OF (1.26%), and  ISHARES IBOXX $ HIGH YIELD CORP (1.19%)^[4]. Government bonds account for 12.31% of the fund.

It pays a dividend of 1.84 %. The dividend is distributed semi-annually. The last four dividends paid were $0.143888, $0.11537, $0.154039, $0.067173 per share.

How has it performed?

The below table shows the average annual returns of Malox and the benchmarks

Will MALOX outperform in the future?

With any mutual fund, past performance doesn’t matter as much as future performance. So let’s look at the 2 active managers involved to determine how much of a likelihood that is.

Rick Rieder & Russ Koesterich

Rick Rieder heads up Blackrock’s Fixed Income division. In his owns words, he sees the current debt securities market environment as being conducive to emerging markets and higher yield assets. Russ Koesterich runs the Global Asset division and has a 20-year background in the field.

Expense ratio and loading fees

The expense ratio of Malox is 0.8%. There are no loading fees for Malox. However, you need to pay a transaction fee of $49.95 when you buy or sell funds.

If you had invested $10,000 into this in 2011, you would have…

If you had invested $10,000 dollars to Malox fund in 2011, you would have $19,307 today. If you had invested in an FTSE world index fund, you would have $25,757. If you had invested $10,000 dollars in an S&P 500 index fund, it would have been $36,700.

What we like better than Malox?

Basically, we prefer ETFs over any mutual fund.

Here’s why;

1. Expense ratio: Mutual funds generally have a higher expense ratio than ETFs. The average expense ratio for actively managed mutual funds is between 0.5% and 1.0%. Rarely, they exceed 2.5%. For passive index funds, the typical ratio is about 0.2%^[5]. This essentially means, you would pay a minimum of $50 dollars for an investment of $10,000 in a mutual fund, whereas you will pay only $20 for the same amount in an ETF.

In addition to these costs, investors in mutual funds may also have to watch out for sales commissions, too, which can quickly eat up your principal before you’ve even invested your money.

2. Annual returns: The average annualized return for mutual funds is about 9.5%, well below the average for 2020. For ETFs, the average annual returns are 12.6% 

The numbers given above show, by choosing to invest in mutual funds, you are paying a lot of money only to underperform the market by 40-50%.

3. Active vs Passive: Mutual funds are actively managed, which is essentially what incurs the expenses. You are paying for active fund management to beat the market, not inflation. However, information from a 2018 report from S&P Dow Jones Indices suggests that more than 92 percent of active fund managers in large companies were unable to beat the market over a 15-year period.

In passive investing, they are not looking to beat the market, they are trying to be the market, which essentially produces better returns.

4. Tax efficiency: Taxation is another huge advantage ETF has over mutual funds. In ETFs, the taxes for capital gains incur only when you sell them, whereas in a mutual fund since the shares in the fund are traded throughout the life of the investment, they incur taxes, as and when there are capital gains.

5. Commissions and minimum purchases: When it comes to commissions, ETFs wins, no doubt that. Most of the major brokerages have cut down the commissions to zero on ETFs available on their site. So it won’t cost anything to buy or sell these funds. With mutual funds, some charge sales commissions of 1 or 2 percent of your money. Brokerages may also charge a fee for trading the funds.

As for minimum purchase for an ETF, most brokerages require you to buy at least one share of the fund, even though, nowadays, many brokerages allow you to buy fractional shares as well. When it comes to mutual funds, some may require you to purchase at least $2,500 to get started. Some charge early redemption fees if you sell your position in less than 30 days.

Most importantly, the investment process is a lot simpler when it comes to ETF. Buying or selling an ETF can be done the same way you would do with stocks on an exchange. Even though it is not a complicated process when it comes to mutual funds, it does take some effort, and since they are priced at the end of the trading day, you won’t know what you are paying till the transaction is complete.

Our ETF recommendations:

We are recommending these ETFs, because similar to mutual funds, you can also invest in stocks and bonds using these ETFs, only more efficiently. VIG and VYM hold stocks and VGLT holds bonds.

1. Vanguard Dividend Appreciation ETF (NASDAQ: VIG)

This is ETF tracks the Dividend Achievers index. It consists of 182 companies. VIG’s biggest holdings are currently Microsoft, Visa, and Procter & Gamble. Some of the other major holdings include Walmart, McDonald’s, and Johnson & Johnson. It has returned 350% over a 10-year period. $10,000 invested in the fund a decade ago would have turned into $35,000 by now. Best of all, VIG charges a low fee of just 0.06% per year and their dividend yield is 1.8%.

       2. Vanguard High Dividend Yield ETF (VYM)

Vanguard describes VYM as a high yield ETF. the ETF tracks the FTSE High Dividend Yield Index. VYM holds 426 dividend-paying companies across all industries. Currently, financials and healthcare account for the largest holdings. The biggest holdings of the fund are Johnson & Johnson, Procter & Gamble, and JPMorgan Chase. Other holdings include AT&T and Intel for some higher yields. VYM currently yields 3.59%, and the expense ratio is the same as VIG, 0.06%.

        3. Vanguard Long-Term Treasury ETF(VGLT)

VGLT is primarily a bond ETF, specifically a US Treasury Bond ETF. 99.9% of the holdings are in US government treasuries with a weighted average of 10-25 year maturity. VGLT currently yields 1.39%. Between March and September 2020, VGLT returned 25.38% compared to 6% for the S&P 500 on a YTD basis. VGLT has monthly distributions of $0.14 per share (roughly a two percent annual yield), which is great if you want more frequent payouts. Its expense ratio is just 0.05% as compared to similar funds that charge anywhere from 0.07% up to 1%.

Bottomline

To sum it up, for the individual investors, we prefer ETFs over any mutual fund, including Malox. Similar to mutual funds you can use ETFs to invest in stocks and bonds. Only with benefits such as tax advantages, low commissions, and the low expense ratio, more liquidity, and most importantly, better returns.

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