From the December 2008 issue of Investment Advisor • Subscribe!

December 1, 2008

Finding a Balance

Since mid-September, market volatility has been hitting all-time highs, with crazy rides up and down (often within the same day); it thus may come as no surprise that individual investors are catching the schizophrenia. Many advisors have shared anecdotes demonstrating that most individual investors are relative investors in up markets and absolute investors in down markets. You've probably witnessed it yourself: a client who cares only about outperforming the S&P 500 when markets are going up is suddenly calling to ask you how to protect his portfolio from any losses.

It may be a good time to talk about balanced funds. The tables on this page list some of the best-performing balanced funds for one-, three-, and five-year periods.

The top-performing fund for all three periods is Hussman Strategic Total Return. The fund invests primarily in U.S. Treasury and government agency securities with the objective of long-term total return, and has the ability to take a limited exposure in foreign goverment bonds, utility stocks, and precious metals shares, and places added emphasis on defending capital during unfavorable market conditions. Sound like exactly what clients have been asking for? In the third quarter, the fund gained 0.67%. That might not sound like much until you keep in mind the S&P 500 index dropped 8.4% and the average diversified equity mutual fund lost 10.3% in that period. Dr. John Hussman, who has persistently argued for the last decade that stocks are overvalued, now believes they are undervalued, according to market commentary published at the end of October.

Berwyn Income is in the tables for one-year and three-year performance. It was basically flat in the third quarter (down 0.18%). For investors desiring a high level of current income while maintaining some potential for capital appreciation, Berwyn Income Fund invests the majority of its assets in bonds, though it may invest up to 30% of its assets in dividend paying common stocks. The fund's balanced, income-oriented approach affords a greater level of price stability than an all equity portfolio.

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