Balanced funds provide investors with the convenience of buying into a single fund rather holding both equity and bond funds. 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.
Below are five top-rated balanced mutual funds. Each has earned a Zacks No. 1 Rank (Strong Buy), as we expect the fund to outperform its peers in the future. To view the Zacks Rank and past performance of all balanced funds.
1. Fidelity Balanced
(FBALX) seeks to provide both capital appreciation and income. Around 60% of the fund's assets are used 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 balanced mutual fund has a minimum initial investment of $2,500 and an expense ratio of 0.60% compared to a category average of 0.99%.
2. Vanguard Tax-Managed Balanced
(VTMFX) invests 50% to 55% of its assets in municipal securities and the remainder in common stock. 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%. Michael Perre has been the fund's manager since 1999.
3. Buffalo Flexible Income
(BUFBX) seeks capital growth over the long term. The fund invests in a mix of domestic common and preferred stocks, convertible securities, and debt. The fund’s debt investments may be rated as well as unrated. The balanced mutual fund returned 11.86% in the last one-year period. As of September 2011, this balanced mutual fund held 90 issues, with 6.62% of its total assets invested in Fidelity Instl MM Fds Government I.
4. Ivy Balanced A
(IBNAX) invests in a diversified portfolio of equity, debt, and short-term instruments, the composition of which depends on current market conditions. The fund focuses on investing in large- and mid-cap companies that pay regular dividends. The balanced mutual fund has a 10-year annualized return of 5.48%, a minimum initial investment of $500, and an expense ratio of 1.30% compared to a category average of 0.99%.
5. MEMBERS Diversified Income A
(MBLAX) 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. John H. Brown has managed this balanced mutual fund since 1998.
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