4 Balanced Mutual Funds to Buy for Stability in Uncertain Times

Zacks Equity Research
·5-min read

The Federal Reserve chairman continues to stress on a stable inflation rate. Although the Fed’s long-term target of 2% is far from reach, its aggressive inflation-fighting interest rate hike for 10 straight months has pushed inflation to the lowest in two years. Currently, the consumer price index increased 4% for 12 months ending May. This is mostly due to the declining prices of energy and electricity.

The overnight interest rate is in the range of 5-5.25% from near zero levels in March 2022. After a pause in June, the Fed chairman’s recent indications suggest that he is more inclined to support another half a basis point hike this year to tame sticky inflation mostly due to the resilient labor market.

The first half of this year saw the worst banking crisis in the history of the United States. The Federal Depository Insurance Corp. (FDIC) had to step in to take over three of the nations largest banks, namely Silicon Valley Bank, Signature Bank and First Republic, which collapsed due to poor risk management.

Though the effects of past tightening are still makings their way through the economy, many economists have raised concerns over further rate hikes on the economy and financial system. Recession is also a possibility if the Fed fails to strike the right balance.

Geopolitical issues such as the ongoing Russia-Ukraine war and struggling Chinese economy also have an indirect impact on global supply chains. OPEC+ members’ decision to cut down on oil supply will also push oil prices higher, thereby increasing inflation rates.

Keeping such an uncertain situation in mind, prudent investors can consider parking their money in balanced funds, otherwise known as hybrid funds. These usually invest in equity and debt instruments in various proportions, depending upon the market conditions. The primary aim of these funds is to provide investors with a stable return having a balance between risk and capital appreciation. Also, these mutual funds are believed to provide higher returns than pure, fixed-income investments.

Thus, from an investment standpoint, we have highlighted four balanced mutual funds that are expected to give a positive return in such uncertain times. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

These funds, by the way, have given impressive 3-year and 5-year returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy), offer a minimum initial investment within $5,000, and carry a low expense ratio compared to the category average.

Dodge & Cox Balanced Fund DODBX seeks long-term growth capital appreciation along with current income by investing most of its net assets in a diversified portfolio of equity and debt securities in various proportions. DODBX advisors may also invest a small portion of their net assets in U.S. dollar-denominated equity or debt securities of foreign issuers traded in the United States but not part of the S&P 500 Index.

David C. Hoeft has been the lead manager of DODBX since Jan 1, 2002, and most of the fund’s holdings are in companies like Occidental Petroleum (2.68%), Charles Schwab (2.57%) and Fiserv (2.13%) as of Dec 31, 2022.

DODBX’s 3-year and 5-year returns are 10.4% and 6.8%, respectively.  The annual expense ratio is 0.52% compared to the category average of 0.84%. DODBX has a Zacks Mutual Fund Rank #1.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Fidelity Balanced Fund FBAKX invests most of its net assets in a portfolio consisting of equity securities, bonds, and other debt securities, including lower-quality debt securities and junk bonds. FBAKX advisors also invest a small portion of their assets in fixed-income senior securities.

Steven Kaye has been the lead manager of FBAKX since Sep 30, 2008, and most of the fund’s holdings are in companies like Microsoft (4.13%), Apple (3.72%) and Amzon.com (1.77%) as of Feb 28, 2023.

FBAKX’s 3-year and 5-year returns are 9.4% and 8.7%, respectively.  The annual expense ratio is 0.43% compared to the category average of 0.84%. FBAKX has a Zacks Mutual Fund Rank #1.

State Farm Balanced Fund STFBX invests most of its net assets in equity securities of preferably large and medium-cap companies. STFBX advisors consider large and medium-cap companies as defined by S&P Dow Jones Indices at the time of investment.

David M. Alongi has been the lead manager of STFBX since Mar 31, 2021, and most of the fund’s holdings are in companies like Apple (8.69%), Walt Disney (4.08%) and Eli Lilly (3.37%) as of Mar 31, 2023.

STFBX’s 3-year and 5-year returns are 8.7% and 8.2%, respectively. The annual expense ratio is 0.14% compared to the category average of 0.84%. STFBX has a Zacks Mutual Fund Rank #1.

Vanguard Wellington Fund VWELX invests more than half of its net assets, mostly in dividend-paying equity securities of large-cap companies. VWELX advisors also invest in fixed-income securities like investment-grade corporate bonds, government agency bonds, and mortgage-backed securities with the potential to generate current income.

Loren L. Moran has been the lead manager of VWELX since Jan 27, 2017, and most of the fund’s holdings are in companies like Microsoft (4.54%), Charles Schwab (2.60%) and Apple (2.48%) as of Feb 28, 2023.

VWELX’s 3-year and 5-year returns are 7.1% and 7.0%, respectively. The annual expense ratio of 0.25% is lower than the category average of 0.84%. VWELX has a Zacks Mutual Fund Rank #1.

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