The buzz is "balance" in 2012, and the term as it applies to mutual funds is just as it sounds, holding both stock and bond positions in one convenient ’40 Act wrapper. The theory is reduced volatility, and the attendant reduced return, but investors don’t mind too much if it smoothes out the ride.
Zacks Investment Research rates the top five balanced mutual funds.
“Balanced funds provide investors with the convenience of buying into a single fund rather holding both equity and bond funds,” according to the research firm. “This category of funds also reduces a portfolio’s volatility while providing higher returns than pure fixed income investments. Fund managers of such funds also enjoy the flexibility of varying the proportion of equity and fixed income investments in response to market conditions. An upswing may prompt them to hold a relatively higher share of equity in order to maximize gains; whereas a downturn sees them turning to fixed income investments to stem losses.”
Their picks are listed on the following pages. Each has earned a Zacks No. 1 Rank (strong buy) as the firm, “expect[s] the fund to outperform its peers in the future.”
1) Fidelity Balanced (NASDAQ:FBALX)
The fund seeks to provide both capital appreciation and income. Zacks reports that “around 60% of the fund’s assets are utilized to purchase equity securities. The balance is invested in debt securities, including those of lower quality. The balanced mutual fund returned 5.45% in the last one year period.”
The fund is managed by a team led by manager George Fischer.
2) Vanguard Tax-Managed Balanced (NASDAQ:VTMFX)
The fund invests 50% to 55% of its assets in municipal securities and the remainder in common stock, according to Zacks.
“The fixed-income component of its portfolio is primarily composed of municipal securities of high quality. The balanced mutual fund has a three-year annualized return of 11.36%.”
The Fund Manager is Michael Perre.
3) Buffalo Flexible Income (NASDAQ:BUFBX)
The fund seeks consistent cash income generation through a diversified, yield-focused investment strategy, according to Buffalo Funds. It has the flexibility to invest in a variety of income-producing asset classes including, but not limited to, dividend-paying equities, high yield and investment grade corporate bonds, convertible securities, real estate investment trusts, master limited partnerships and bank loans.
The fund has achieved five stars in each of the past 10 years and is co-managed by Paul Dlugosch and the firm’s founder, John Kornitzer.
4) Ivy Balanced A (NASDAQ:BNAX)
The fund invests in a “diversified portfolio of equity, debt and short term instruments, the composition of which depends on current market conditions,” the research firm reports. “The fund focuses on investing in large and midcap companies which pay regular dividends. The balanced mutual fund has a 10-year annualized return of 5.48%.”
The fund is managed by Cynthia Prince-Fox.
5) MEMBERS Diversified Income A (NASDAQ:MBLAX)
The fund invests in “a wide range of securities such as domestic and foreign bonds and common stock and money market securities. A maximum of 80% of its assets may be invested in bonds and up to 70% in stocks. The balanced mutual fund returned 8.74% in the last one year period.”
The fund manager is John Brown.
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