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By Jason Stipp | 04-19-2011 05:02 PM

Benz: Some Favorite Balanced Funds

Recent Morningstar research shows that investors tend to use balanced funds better than other fund types.

Jason Stipp: I'm Jason Stipp for Morningstar. Although, investors have a plethora of investment vehicles to choose from, some recent research from Morningstar showed that a veteran investment type, the balanced fund may actually be used better by more investors.

Here with me to explain that research and offer some of her favorite balanced funds is Morningstar's Christine Benz, director of personal finance.

Thanks for joining me, Christine.

Christine Benz: Jason, great to be here.

Stipp: So, our director of fund research, Russ Kinnel, recently did a study that was looking at investor returns, and it showed some interesting things about lots of different investment types, but balanced funds in particular. What did that study find about those funds?

Benz: Well, it found that investors tended to use these funds relatively well. So, when we looked at the investor returns, which are essentially dollar-weighted returns that look at when flows come in and out of mutual funds, what they found was that balanced fund investors really got to hang on to a lot of the total returns that the funds generated, because they timed their purchases relatively well or more importantly, they probably hung on through those periods of relatively weak performance.

Stipp: So, you get a stated return when you look at a mutual fund's data page. These investor returns take into account when people got in and when they came out. So, even though a fund may have had a 50% return in one year, it doesn't mean that everybody captured that return, right?

Benz: That's exactly it, Jason. So, Russ looked at equity funds by contrast, and recently we've had this tremendous rally in equity funds. What Russ has found is that investors didn't get a full piece of the action, because what we've seen, by and large, is investors buying a lot of bond funds over the past few years. So, that was one category where investor behavior wasn't as fortuitous. In the case of balanced funds, it's actually been pretty good.

Stipp: So, you mentioned with the balanced funds investors maybe have held onto them, and didn't get out of them at the wrong time. What are some of the reasons why they have been used better by investors potentially?

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