The Power of Balanced Funds

We’ve talked quite a bit about how equity mutual funds, which had seen outflows ever since the market crashed in 2008, have rebounded strongly this year. But another type of fund has also shown remarkable strength: Balanced funds, which have seen a record amount of money pumped into them.

Balanced funds invest in both stocks and bonds, which makes them a nice halfway point for investors still somewhat spooked by the stock market. According to a Bloomberg study, they’ve taken in more money from January through April of this year than in any previous four months on record. Assets in the balanced funds Bloomberg studied took increased 3.6 percent, or three times the rate of equity funds, which increased 1.2 percent.

The surprising thing about all this success is that the performance for balanced funds hasn’t been great.  Such funds have returned 8.8 percent this year, as opposed to 16 percent for the S&P 500. That’s to be expected, though; the bond part of the portfolio is intended to be protection against the riskier equity side of the portfolio.