Balanced funds provide investors with diversification within the confines of a single investment vehicle by holding a portfolio of highly uncorrelated asset classes. Such funds are ideal for people who want to avoid investment products that are either too conservative or too risky. Thus, a balanced fund can give an investor both capital growth and investment income over the long term. Balanced funds can also help to dampen the volatility induced by market fluctuations.
While variations abound, many balanced funds typically allocate 60% to stocks and 40% to bonds or cash instruments. Within these allocations, however, balanced fund managers may exercise some discretion over what assets they invest in. In any case, over the longer term, balanced portfolios will offer less risk than pure-equity products, but somewhat more risk than do pure fixed income/cash funds.
One of the best long-term performers in this sector, the $786-million Delaware Dividend Income Fund (DDDIX) tends to invest in large-cap companies (for the equity portion) and various types of bonds, including high-yield instruments (for the fixed income segment). This portfolio is vast, comprising a total of 322 securities. As of December 31, 2006, the fund had 59% of its assets invested in common stocks, 21.7% in fixed income, 10.4% in convertible bonds, 4.6% in preferred stocks and 3.8% in cash & cash equivalents. This fund is overseen by a team of nine portfolio managers.
Another solid long-term performer, the $9.2-billion T. Rowe Price Capital Appreciation Fund (PRWCX) invests in a mix of stocks, convertible bonds, fixed income securities, and cash. As of September 30, 2006, portfolio managers Jeff Arricale and David Giroux had 61.3% exposure to stocks, followed by cash (19.2%), 15.6% in convertible securities and 3.9% in domestic bonds. By sector (which includes both equities and bonds), financials (16.6%) and consumer discretionary (14.4%) led the pack.–Palash R. Ghosh