Top Funds with a Bolder Mix of Stocks and Bonds
Our Premium Fund Screener picks a dozen moderate-allocation winners.
Morningstar recently introduced a spate of new mutual fund categories. Two of the new categories, moderate allocation and conservative allocation, replaced our old domestic-hybrid category. Weighing in at nearly 400 funds, the domestic-hybrid peer group was large, and because Morningstar categories are designed to facilitate comparisons between similar funds, it made sense to distinguish mild-mannered hybrid offerings from their racier cousins. Thus, conservative-allocation funds are those that concentrate 50% to 80% of their assets in fixed-income instruments and cash. Moderate-allocation offerings, on the other hand, tend to stash 50% to 70% of assets in equities.
Funds mixing stocks and bonds can make great core holdings. They're a generally temperate bunch as a rule, and as Vanguard's Joel Dickson explained at last month's Morningstar Investment Conference, allocation funds also offer a small tax advantage when compared with owning stock funds and bond funds separately.
Investors should bear in mind, however, that the categories are hardly monolithic. Some allocation offerings sport growth-oriented equity portfolios, while others favor value fare. Fixed-income orientation varies across the group, too. Most favor high-quality bonds, but some offerings--such as Dick Habermann's successful Fidelity Asset Manager (FASMX) charge--will invest significant sums in high-yield debt.
So as always, in other words, it pays to do your homework.
That's where our Premium Fund Screener comes in. For this week's screen, we searched for those moderate-allocation offerings that sport superior returns, low expenses, and management teams with track records of five years or more. We kicked out multiple share classes of the same fund and screened for those offerings that feature reasonable initial-investment minimums of $3,000 or less. We also dialed down the level of relative riskiness, filtering for just those offerings that sport investment-grade bond portfolios. (And remember, you can tweak the screen to your heart's content. If you're looking for a racier offering, for instance, you might want to filter for funds whose equity portfolios fall into the growth zone of the style box.)
All told, 12 funds made the grade. Highlights from the Analyst Reports on three of them appear below, but be sure to read the full report, if available. A successful track record is terrific, but you'll also want to make sure you're comfortable with the fund's strategy before taking the plunge.
Click here to run this screen yourself.
American Funds American Balanced (ABALX)
This fund buys cheap blue-chip stocks and holds them for the long term. Typically, it puts about 55% of its assets in equities, 30% in bonds, and the remainder in cash. While it sometimes trails its more-aggressive peers, it's a great choice for conservative investors.
Dodge & Cox Balanced (DODBX)
Dodge & Cox's stock- and bond-focused funds are among the best in their respective categories. So it's not too surprising that this fund, with the same management and value-oriented approach, is a category standout. Its strong long-term record and low expenses give it considerable appeal.
Van Kampen Equity and Income (ACEIX)
This moderate allocation fund is a bit more aggressive than the norm. Its equity stake tends to be on the high side, and it generally holds a smaller bond stake than its typical peer. The fund also devotes 10% or so of assets to convertible securities, which are more equity-like than bonds.
Shannon Zimmerman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.