It has been a very rewarding year for the stock market, with many growth-oriented mutual funds putting up some huge numbers so far this year.
A good example of growth’s strength this year is the Primecap Odyssey Aggressive Growth (POAGX), up a robust 42% year-to-date, and its performance is a good part of why my newsletter The Relevant Investor is ranked in the top 20% of all newsletters for risk-adjusted performance over the past year by The Hulbert Financial Digest.
However, many investors at or near retirement remain doubtful of this market and extremely cautious — and rightfully so.
As experienced investors know, the market does not rise in an uninterrupted fashion. Until yesterday’s snap-back, the federal government shutdown caused the stock market to give up ground, waiting for the drama to cease. That’s because the stock market hates uncertainty — and so do investors.
This presence of uncertainty has gone a long way in discouraging investors over the past few years, for sure. It is a big reason that many gave up on equities after the S&P 500 lost about 37% of its value in 2008. That’s a shame because many investors just have not profited as they should have during the current bull market phase.
For investors looking to get back in or simply preserve what they have, a good balanced fund that mixes stocks, bonds and cash may be a key piece of the puzzle. By that I mean that a balanced fund may help keep an investor in equities through the inevitable bad times that will surely come again.
Here are two solid no-load mutual funds open to new investors:
Oakmark Equity and Income Fund
Oakmark Equity and Income (OAKBX) is not your typical balanced fund. OAKBX has the flexibility to invest between 40% and 75% of its portfolio in stocks, and currently has about 75% in equities. Current top holding include Dover (DOV), UnitedHealth Group (UNH), General Dynamics (GD), Oracle (ORCL) and General Motors (GM).
Only about 15% of OAKBX’s portfolio is in bonds, with about 10% in cash. No doubt this reflects the view of manager Clyde McGregor that bonds are not particularly attractive at present relative to stocks.
McGregor has managed this balanced fund since 1995, and investors have been well rewarded over time. According to Morningstar data, OAKBX is up 14.5% year-to-date and has gained 8.3% annually over the past 10 years, placing it in the top 3% of its category. The fund held up especially well in the 2008 crisis — losing just 16.2% compared to about 37% for the S&P 500.
The ability of a fund to minimize losses in tough times is a great benefit, and an indication of management that is very in tune with risk and how to manage it.
Oakmark Equity and Income charges a reasonable 0.78% annual expense ratio, or $78 of every $10,000 invested, and trades very little as the 29% turnover ratio suggests.
Fidelity Balanced (FBALX) is managed by a team that slices up the various components of the fund, and the end result has been quite good over time. The fund is up 11.2% YTD and has gained 11.9% annually over the past 5 years, placing it in the top 11% of its Morningstar category.
Former Fidelity Magellan (FMAGX) manager Bob Stansky leads a team that oversees this offering, with each manager responsible for a sleeve of assets. The fund aims for a 60/40 mix of stocks to bonds, but presently stocks are 70% of the portfolio and bonds account for about 29%. Current top holdings include: Exxon Mobil (XOM), Procter & Gamble (PG), Capital One Financial (COF), JPMorgan Chase (JPM) and Google (GOOG).
FBALX charges a reasonable expense ratio of 0.59%, though this balanced fund also has a high turnover ratio of 155% during the past year.
As of this writing, Bill Wysor was long FBALX.