Fidelity Balanced

01/23/2015 7:00 am EST


Jack Bowers

Editor, Fidelity Monitor & Insight

Unlike pure stock funds that emphasize capital appreciation and pay no attention to income, dividend income is a far more important component of a growth and income fund’s total return stream, notes Jack Bowers, editor of Fidelity Insight & Monitor.

Another hallmark of a growth and income fund: its yield must typically exceed the S&P 500. These funds are better sleep-at-night alternatives; risk is reduced because they hold lots of investment grade bonds.

My conservative pick for 2015 is Fidelity Balanced (FBALX), a 60/40 fund. This fund has an unusually good track record among its peers and is a shining example of a disciplined multi-manager approach that is working well.

The secret is diversification; the team avoids making any big bets on a single stock or a single industry group.

And, when appropriate, Balanced also holds higher-yielding junk bonds, typically in the single digits.

While junk helps to increase yield, it adds risk relative to the fund’s more plain vanilla bonds, though even they are significantly less risky than the fund’s equity holdings which, by-the-way, skew towards the large-cap value camp.

With its neutral asset allocations to stocks and bonds of about 60%/40%, volatility (risk) at Balanced is nearly 30% lower than the S&P 500.

This contrasts with Fidelity’s equity-only growth and income funds whose average volatilities are 4% higher than the market. In a nutshell, bonds are why they’re less risky.

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