PIMCO today launched its Global Multi-Asset Fund (GMAF), a global asset allocation portfolio designed to outperform the traditional 60% stock/40% bond asset allocation approach. It uses a wide variety of index-based derivatives as a core hedging technique to accomplish that outperformance.

The fund of funds may cater to an appetite for more-diversified, risk-averse funds after investors took a wallop during the recent market tailspin. However, from PIMCO's perspective, the fund is not being launched to exploit short-term market conditions, but rather, because traditional noncorrelation approaches have not worked. Ten of the 11 major asset classes have been in negative territory during the recent market route, and that is evidence of a larger breakdown in conventional asset allocation philosophy, PIMCO CEO Mohamed El-Erian noted in a statement accompanying the fund's launch.

The Global Multi-Asset Fund, a fund of funds, will invest in PIMCO underlying portfolios that use S&P 500, RAFI 1000 and Russell 2000 index derivatives, among a wide variety of other hedging techniques, to hedge the tail risk of major market events, and to better reflect a global marketplace in which the traditional diversification model may be broken, or at least showing cracks. In all, the fund has the flexibility to invest in dozens of PIMCO portfolios beyond the index derivatives-based strategies and across the fund manager's spectrum of active equity, bond and real asset investments.

The fund may also more closely resemble the type of investment approach that PIMCO CEO El-Erian became accustomed to during his relatively short stint running the Harvard University endowment fund. While retail investors have traditionally been limited to stock and bond investments in terms of diversification, institutional investors-including the largest foundations and endowments-typically blow away the performance of retail investors by using more-sophisticated, hedged global asset allocation. What's more, even diversification into real assets, such as gold, has not helped investors during the equities sell-off as much as traditionally modeled.

Beating the 60% MSCI World Index and 40% Lehman Brothers Aggregate Index is the fund's goal, and its more-sophisticated management approach comes with a hefty price tag, a management fee of 1.05%. The average management fee in the global flexible portfolio category is 0.88%, according to Lipper.