Balanced funds follow a recipe that allows the fund manager to typically mix stocks, bonds and cash in the same fund package. But as is the case with almost everything, the devil is in the details — here, it’s getting the asset allocation right as well as the specific holdings.
Conventional wisdom regards balanced funds as appropriate only for conservative investors. However, I would expand that to investors of any age who are nervous about the stock market and looking for a kinder, gentler way to participate in the equity markets.
If that includes you, you might want to consider one of the following three mutual funds:
FPA Crescent Fund
FPA Crescent Fund (FPACX) manager Steve Romick has been masterful over time managing this $13.2 billion fund. His aversion to risk and keen stock-picking has landed this mutual fund in the top 2% of its Morningstar category during the past 10 years with a gain of 8.7% annually.
Romick places a great emphasis on protecting shareholders from downside risk, and has roughly 55% of the fund in stocks at present. Meanwhile, about 29% of this mutual fund is in cash and around 15% is allocated to bonds. FPACX can even sell stocks short, which he occasionally does on a limited basis.
Some years ago, the fund’s stock holdings were mostly small- and midcap names, but over time this focus has shifted to larger companies as this fund has seen assets grow substantially. Recent top holdings include: Microsoft (MSFT), AON (AON), CVS Caremark (CVS), Thermo Fischer Scientific (TMO) and Covidien (COV).
This growth in assets, however, has not hurt performance, and FPA Crescent remains a very attractive mutual fund option. Turnover is 26% over the past year, and FPACX charges 1.16% in expenses, or $116 for every $10,000 invested.
Vanguard Wellington (VWELX) remains a classic example of a how well a time-tested strategy can work.
Edward Bousa and John Keogh are at the helm of Wellington, which dates back to 1929. The $75 billion mutual fund is huge in size, and as a result, Vanguard has restricted new accounts from institutional clients. New retail accounts, however, can be opened directly with Vanguard.
During the past 10 years, the fund is up 8.3% annually, good enough to rank in the top 4% of its Morningstar category. The mutual fund currently has about 66% of its holdings in the stock market, with about 32% in bonds. Current top holdings include Wells Fargo (WFC), Exxon Mobil (XOM), JPMorgan Chase (JPM), Merck & Co. (MRK) and Microsoft.
Vanguard charges a miniscule 0.25% in expenses for VWELX.
Quietly doing a fine job for shareholders, Bruce Fund (BRUFX) is a hidden gem in the mutual fund world.
Managed by the father-and-son team of Jeffrey Bruce and Robert Bruce, this mutual fund does no advertising and does not seek the spotlight. The fund has an asset base of just $391 million and is only available for purchase directly from the fund’s custodian.
No doubt, this restricted availability has limited asset growth, but this smallish asset base gives the managers much greater flexibility with investment choices. Most of the stock portion of this fund is comprised of mid-, small- and microcap names — including $3.3 billion Amerco (UHAL) as its No. 1 holding — though large-caps Allstate (ALL), Pfizer (PFE), Merck and International Business Machines (IBM) are among BRUFX’s higher weightings.
Bruce Fund is ranked in the top 1% of its Morningstar category over the past 10 years, gaining 13.7% per year. Currently the fund has a 48% allocation to stocks, 25% in bonds, 13% in cash and the rest among other assets.
A reasonable 0.78% expense ratio makes BRUFX even more compelling.
As of this writing, Bill Wysor was long FPACX.