Balanced Funds Provide Portfolio Diversification

A balanced fund is a type of hybrid fund which invests in two or more asset classes. Generally, balanced funds stick to a relatively fixed proportion of stocks and bonds but may also have a money fund component. Their objective is typically a mix of income and capital appreciation.

The ratio of equities and fixed income may vary somewhat over time, but does not materially change, as is the case with other hybrid funds such as life-cycle, target-date, and actively managed asset allocation funds. The latter group shifts its asset allocation in relation to investor age and changing risk/reward preferences or in response to economic and investment market conditions. A balanced fund’s most typical asset allocation is 60% stocks and 40% bonds. Again, typically, the stock portion is invested in low- to medium-risk securities, and the income portion is in higher-quality bonds. 

Fidelity Balanced Fund (FBALX)

Within the equity sleeve, sector weightings are kept in line with the S&P 500. Hence, technology is the lead sector in the stock portfolio, accounting for 19.5% of assets, followed by health care, financials, industrials, and consumer cyclical. About 4% of assets are invested in foreign stocks. Current holdings follow a large-cap growth style.

The fund avoids big interest rate bets. More than half of bond assets are in U.S. Government debt, with the next largest exposure by quality being in the BBB range.

Vanguard Balanced Index – Admiral Shares (VBIAX)

On the equity side, the portfolio mimics the CRSP U.S. Total Stock Market Index, which includes 3,600 stocks ranging from micro-caps to the most extensive stocks traded on the New York Stock Exchange and the NASDAQ. The fund contains a sampling of the smallest but replicates the rest, holding 3,500 securities. Technology is the largest sector, weighing 26.3% of assets, followed by consumer discretionary (14.7%). Health care, industrials, and financials follow, all between 11%-14% of assets. This fund’s portfolio differs from others in the asset allocation category because it holds less than 1% in foreign securities.

The fixed income portion of the fund tracks the Bloomberg U.S. Aggregate Float Adjusted Bond Index, which represents a broad spectrum of taxable investment-grade bonds. It includes government, corporate, and international dollar-denominated bonds with more than one-year maturities. The fund’s bond holdings are selected through a statistical sampling process. The fund maintains an average maturity and credit profile in line with the index. About 67% of assets are invested in U.S. Government securities, with most of the remainder in the A/BBB range. Here, the fund differs from some peers because it does not hold high-yield debt.

If you are not currently a subscriber. Click the link below to check out our latest trial offer.