Much of the fanfare> in the mutual fund world is devoted to high-flying funds that post eye-popping returns. James Balanced: Golden Rainbow (GLRBX)
Nevertheless, balanced funds like James, which consist of sleeves of stocks and bonds (and, on occasion, commodities and cash, too), are a hard sell for some investors right now. When the stock market rallies balanced funds lag their equity-only competitors because the conservative fixed income component weighs on returns. Given that the S&P 500 is up more than 12% in 2009, balanced funds aren t on many buy lists.
Should the rally cool off, however, balanced funds could wind up outdoing some of their all-equity peers. In down or flat markets the bond component gains favor as stocks slump. If the market experiences the occasional upward movement, a balanced fund s equity component will capture some of those gains. While it's impossible to predict what the market will do in the second half of 2009, these funds offer some upside in either scenario -- or at least they aim to.
Balanced funds try to be an all-weather type of investment, says Craig Skeels, managing director of Apex Wealth Management Group in Oxnard, Calif.
This week the SmartMoney fund screen focuses on balanced funds. We started with 2,248 funds and share classes in Lipper s Mixed Asset category. Lipper's Mixed Asset category encompasses a wide variety of offerings.
There are the traditional balanced funds and also funds-of-funds and target date offerings that shift between stocks and bonds the closer they get to a prescribed year. The category also includes asset allocation funds that are typically stamped with conservative, moderate or aggressive in their names. For the purposes of this screen, we stuck to traditional balanced funds. We narrowed that group by looking for funds with above-average performance during the trailing 3- and 5-year time periods. The funds had to charge cheap fees and be open to new investors. As usual, we did not include load funds. That ultimately left us with the 14 funds.
Investors shouldn't approach balanced funds as a way to make quick money off a market recovery. Advisors consider balanced funds a core holding that should be in a client's portfolio for decades. What s more, since balanced funds are a cheap alternative to buying separate equity and bond funds they make for decent starter kits.
There is nothing wrong with them, but generally speaking [sophisticated investors] need a more customized approach, says Jill Holup, director of investments at Lowenberg Wealth Management in Austin, Tx. But, she adds, they make sense if you are 23 years old and just starting to invest.
There are several funds that are making return appearances on this screen. James Balanced Golden Rainbow, Permanent Portfolio (PRPFX),
The Criteria: The funds below are part of Lipper s Mixed Asset classification. They have 3- and 5-year track records that put them in the top 40% of their respective peer groups. In addition, they are open to new money, require a minimum investment under $5,000 and charge an annual expense ratio under 1.5%. As usual, we did not include load funds.
Note: Data as of Aug. 6, 2009
|FGBLX||Fidelity Global Balanced||16.52||2.27||7.40||36.78||1.13|
|HSTRX||Hussman Strategic Total Return||3.57||7.61||7.93||65.38||0.90|
|GLRBX||James Balanced: Golden Rainbow||4.70||3.12||6.31||45.45||1.18|
|MAPOX||Mairs & Power Balanced||13.40||-0.61||3.09||34.53||0.80|
|RPBAX||T. Rowe Price Balanced||14.30||-0.59||3.70||31.77||0.67|
|PRWCX||T. Rowe Price Capital Appreciation||14.30||0.60||4.90||19.80||0.72|
|VWINX||Vanguard Wellesley Income||11.47||2.85||4.70||58.75||0.25|
- Fund Type = Mixed Asset *
- Annualized 3-Year Return (%) = Display Only
- Rank in Classification (%) (3 year performance) <= 40
- Annualized 5-Year Return (%) = Display Only
- Rank in Classification (%) (5 year performance) <= 40
- Expense Ratio <= 1.5%
- Load Fund (type) = No Load
- Minimum Initial Investment <= $5,000
- Open to New Investors = Yes
- Total Net Assets ($ millions) >= 50
- 1% in fixed income = Display Only