According to an article in Smart Money, balanced funds have been attracting client money this year.
So-called balanced funds, which invest in a mixture of stocks and bonds — and occasionally cash, commodities and other asset classes — suddenly are back in style. So far this year, investors added $7.1 billion to these portfolios, according to Lipper, a research firm. That is a huge reversal from last year, when investors yanked $20 billion from these funds.
The turnaround also stands in contrast to pure stock funds, which had inflows of just $56 million this year through March 14. And some investing experts say demand for balanced strategies is likely to rise. “There’s a little ‘Goldilocks’ appeal for investors,” says Russel Kinnel, director of fund research for Morningstar, meaning the funds are “just right” in finding a spot between timid and risky.
Indeed, advisers say they are using the funds to bring clients who are still spooked by last year’s extreme market volatility — but tired of record-low yields in the bond market — back into stocks. The pitch is that these funds offer most of the upside if the market surges but less of the downside if it tanks.
…advisers say balanced funds are often a good fit with younger investors, or those looking for a set-it-and-forget investment. Some also use the funds as core holdings for clients, and supplement them with alternative assets and funds to get even broader diversification.
Advisors are finding that clients are a bit more receptive to the equity story, but far from willing to go “all in.” We’re seeing some glimmers of that in our own survey of investors’ risk appetite. Investors are finally peeping out of the foxhole they have been in since 2008 and surveying the environment. They are beginning to realize that today’s low bond yields will not get them to their goals, but they also seem to want some fixed income as a buffer from market volatility. A balanced fund is a pretty good compromise. (You can find more out about balanced funds generally here.)
The Arrow DWA Balanced Fund (DWAFX) that we sub-advise crossed its 5-year anniversary last summer, while outperforming 90% of its peers. There are dedicated sleeves for fixed income, domestic equities, international equities, and alternative investments. The alternative sleeve, which is something many balanced funds do not include, can come in pretty handy for inflation protection and always adds an additional layer of diversification.
I’ve included a snip with the asset allocation as of 12/31/2011 and the performance of each strategy sleeve. Every sleeve has a positive return since inception in 2006, even with the 2008-2009 bear market. I think it is primarily the hybrid nature of these funds that is making them attractive to clients right now—and DWAFX might be something to consider for clients just easing back to a more normal asset allocation.
Source: Arrow Funds
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