Balanced vs. Puritan: Which Fidelity Fund Should I Own

10/21/2019 5:00 am EST


John Bonnanzio

Editor, Fidelity Monitor & Insight

Here are two questions we’ve answered for about as long as we’ve been publishing this newsletter (which is now almost 35 years  — “What are the differences between Fidelity Balanced (FBALX) and Fidelity Puritan (FPURX), and which of these asset allocation funds should I own?” notes John Bonnanzio, editor of Fidelity Insight & Monitor.

Let’s start with the easiest stuff first: At 0.99 these growth and income funds are very highly correlated. (1.00 would be perfectly correlated.)

And, despite their both holding large dollops of bonds (nearly a third of assets), they are also highly correlated to the S&P 500. However, their bonds greatly reduce portfolio risk to roughly 30% below that stock index. Of course, there are important differences.

Starting with their equity portfolios (which morph over time), Balanced presently has a larger stock allocation relative to Puritan (72% versus 67%, respectively). That difference suggests that Balanced is the riskier of the two.

In addition, it has a bit more in bonds and a bit less in cash, which also adds to risk. But reducing its risk relative to Puritan is how Balanced allocates its stocks: there’s a significantly smaller tech weight (19% versus 25%) which, in turn, results in the fund’s lower price-earnings (P/E) ratio.

That, by-the-way, is emblematic of its large-cap blend focus, whereas Puritan’s is large-cap growth. And, on the bond side, Balanced holds only half as much in high yield (junk) bonds (8% vs. 16%). Given the above, we might reasonably assume that Balanced is the less risky of the two, right? Well, not so fast!

Despite all the extra risk-baggage seemingly carried by Puritan, it turns out that both funds’ 3-year relative volatilities are practically identical (0.73 and 0.72).

With a bit more digging it turns out that Puritan’s investment team favors much bigger stocks: its weighted median market cap is an enormous $109 billion versus Balanced fund’s $78 billion.

In addition, Puritan holds no volatile small-caps (versus nearly 3% for Puritan) and just 4% in mid-caps (versus 12% for Balanced).

Of course, Puritan’s 5% stake in cash also helps to taper its risk. As to which of these funds we prefer, this is where we punt: both are rated Buy as Balanced and Puritan have long delivered attractive risk-adjusted returns.

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