Can you name any mutual funds that have beat the S&P 500 Index over the past 10 years? I’m sure you wouldn’t need to think long to find one that has accomplished this feat.
But try naming three mutual funds that performed like a stock index in the past decade — while doing so with a lower relative risk and a balanced portfolio.
You’d need to do some serious research to come up with those names … if we didn’t already do it for you!
We set out to find mutual funds with a balance of stocks, bonds and cash that put up annualized returns competitive with the 8% earned on average by the S&P 500 Index (which is 100% stocks) over the past 10 years.
Low-Risk Mutual Funds – Bruce Fund (BRUFX)
The Bruce Fund (BRUFX) sounds like an idea from the guy three cubicles down from you than a legitimate mutual fund. But almighty Bruce — which is named for its management team of more than 30 years, Jeffrey Bruce and Robert Bruce — has an impressive 10-year annualized return of 10.8%.
As you might imagine, those gains don’t come without at least some risk — but certainly lower risk than a portfolio of 100% stocks. The fund recently had an allocation of just around 45% stocks, most of which consists of mid- and small-cap companies including Amerco (UHAL), Mannkind (MNKD) and Flotek (FTK). For the bond allocation (17%), it uses a combination of zero-coupon bonds and junk bonds.
This risk can make for some significant declines (the fund shed 27.8% in the midst of the last bear market in 2008) but the lows are not as low as that of stocks (the S&P 500 declined 37% in 2008). Therefore, BRUFX comes out on top of our list of mutual funds with below-average risk and above-average returns.
The initial purchase minimum for BRUFX is just $1,000, and Bruce’s expense ratio is a fair 0.7%.
Low-Risk Mutual Funds – Franklin Income A Shares (FKINX)
Franklin Income A Shares (FKINX) boast a 10-year return of 7.7%, which is just a hair below that of the S&P 500’s 8.0% return, but it accomplishes this stock-like performance with a conservative mix of value stocks, high- and low-credit-quality bonds, and convertible securities.
Not only is there attractive capital appreciation, but income-minded investors will appreciate FKINX’s current yield of 3.5%. That comes thanks to high-yielding top holdings such as Royal Dutch Shell (RDS.A), BP (BP) and Merck & Co. (MRK).
The caution that comes along with balanced funds that achieve above-average long-term returns like this is that they also can suffer significant short-term declines; FKINX fell 30.5% at the worst of the bear market in 2008.
But with proper perspective, the strong capital appreciation and generous income qualities make for a rare combination in a mutual fund.
FKINX has a low expense ratio of 0.62%, though it does charge a maximum front load of 4.25%. That charge may be lowered depending on your purchasing amount. Minimum purchase to enter FKINX is $1,000.
Low-Risk Mutual Funds – Berwyn Income Fund (BERIX)
Berwyn Income Fund (BERIX) is the most conservative of our list with an allocation to common stock that does not exceed 30% of the portfolio, as well as a balance of investment-grade bonds, high-yield bonds, convertible bonds and cash.
The 10-year annualized return is 7.8%, and its worst year in the past decade was in 2008 when it only declined 10.2%, which is nearly 27% better than the S&P 500. As with all the mutual funds in our list with high returns and below-average risk attributes, losing less in down markets is just as important as gaining more in up markets
Income investors also will enjoy the reasonable 2.2% yield for BERIX and expense ratio of only 0.63%. The minimum purchase is $3,000.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.