An inside look into balanced funds

There are many different types of mutual funds available to investors. In fact, the industry breaks down mutual funds into 35 categories. For the year 2002, the top-performing category was precious metals with a 78.8% return and the worst was the science and tech with a 41.9% loss. The problem with categories that make the top and the bottom is that they are risky. Coincidentally, three years ago (December 1999), these two categories were in the opposite spots where science and tech enjoyed the status of the top category (73.5%) while precious metals were second from the bottom (-4.5%). What a difference a few years can make.

The one category that does not often get a lot of attention is the balanced fund categories. The reality is they will never make the top or bottom and rarely make the headlines because they are kind of boring funds.

What is a balanced fund?

A balanced fund is simply a fund that will invest in both equity investments like stocks and fixed-income investments like bonds and cash. The idea behind balanced funds is that they appeal to investors who may want a middle ground to safety, growth, and income.

Balanced funds are really nothing new to the investment world. Pension funds have been managing money in this manner for a long time. In fact, any balanced portfolio should have some stocks and fixed income. Balanced funds simply provide it all in one package.

As a category, here are some of the statistics:

Fund Name 1 yr return 3 yr return 5 yr return 10 yr return
Canadian Asset Allocation -7.1 -1.1 1.7 6.4
Canadian Balanced -5.7 0.3 2.4 7.2
Canadian Income 7.4 12.8 6.5 3.2
Global Balanced -12.5 -5.4 0.5 5.7
Fund Name Standard Deviation 3 Year Worst 1 Year Performance Alpha Ratio Beta Ratio MER
Canadian Asset Allocation 2.73 -11.92 -0.205 0.799 2.7
Canadian Balanced 2.34 -9.66 -0.157 0.674 2.52
Canadian Income 2.52 -3.59 0.205 0.246 2.46
Global Balanced 2.85 -15.56 -0.307 0.987 2.65

Are all balanced funds the same?

Absolutely not. There are many different variations to balanced funds. Currently, if you look at all balanced funds, 922 of the 4497 funds are balanced funds. Of these 922 balanced funds, 306 are global, 616 are Canadian and 106 funds incorporate something called tactical asset allocation where the mix of cash, bonds, and stocks will change regularly and sometime dramatically. The other 816 balanced funds keep a fairly stable mix of stocks and fixed income. Typically, most balanced funds have about 60% in equities and 40% in fixed income.

There is also a new breed of balanced funds called income funds. Currently, there are 33 of these funds. These funds incorporate a newer asset class called income trusts.

With so many different funds, it is not surprising to see a tremendous variance in performance. In 2002, the best performing balanced fund was the Dynamic Focus + Div Income Trust with a 17.9% return. The worst was the Mavrix Diversified with a -33.6% return.

Even on a 5-year basis, the best performing balanced fund was the Trimark Income and Growth Fund with an 8.0% compound annual return. The worst was the Cambridge Balanced with a -23.5% return.

What should you look for in a balanced fund?

Balanced funds are great for conservative investors who want higher returns than what guarantees are offering today without high-risk exposure to equities. This may be a great time to get into balanced funds because of the uncertainty in the markets. If markets rebound, balanced funds will surely participate. On the other hand, the bonds and cash in these balanced funds will help to mitigate and manage the risk of equities. Remember that balanced funds are still mutual funds and there are still no guarantees. Like any other asset class, it is important to look at a multitude of characteristics when trying to pick the right balanced fund.

One of the important aspects of balanced funds is to understand the risk of the fund. According to Bell Charts, Morningstar, the volatility or risk of balanced funds ranges from a low of 0.71 to a high of 7.2. The average standard deviation is about 2.5. In terms of risk, many balanced funds lost money in 2002. In fact, 87.7% of all balanced funds finished the year with a negative return. A good balanced fund should never lose more than 10% to 15% in any 12-month period.

From a performance standpoint, be careful about relying too heavily on snapshot performance. If possible, look at the calendar year returns and if you can get the data for trailing returns, it is a good idea.

Choosing the right balanced fund is no easy task. If it were, we would not have 1000 of these funds to choose from. If you need help, be sure to sit down with a financial advisor to help you with the myriad of choices.


  1. Limoman

    VG Jim
    Being a Ave. Joe ( Self Employed Limo Chauffeur for 30 yrs )
    BG: back in the mid 90’s & After trying for 10 yrs prior doing Indexing and although Indexing Does work, If YOU FOLLOW THE PROGRAM, but I did NOT, Chased Performance and Panic and Sold LOw most of the time, So the Alternative was either (a) Have $50k to Hire a FA or (b) I moved into BF’.s And now, As an advocate of using BF’s for most of us “Ave. Joe” and New Savers..

    1. I decided I had to Settle.. just like my Wife did with marrying

    2. I Started with Vanguards VWELX and expaned into adding more of them, instead of going back to my Old Wrong ways of Buy Equities and Bonds..

    3.And just make $ at what I CAN Do, not what i want to do..( My Career in runninng my Limo Business)

    4. REBALANCING was the key for me..Cant Rebalance onwing just 1 BF.. But 2 different one’s? Sure.. and I kept 10% In a Bond Fund to Dip into to use to Also Add to my Rebalancing routine..

    5. Owning 3 different BF’s is Being Pretty Diversified for me and is having 3 different FA’s Running 3 Different Portfolio’s for me..

    6. IF VWELX does just as well as owning a INDEX Port of 7 funds, like the Coffeehouse Port? Then Beating VWELX or use as the Benchmark was my goal
    and if after 10 yrs , I couldn’t? Then I would give up those other BF’s and Just Own VWELX.

    So far? Since 96′ thru 2010, I’m ave. 1.8% apy ahead of VWELX.. Which I assume I will make about +50% more in a 20 yr span at this rate?

    And most Importantly? Keeps me out of the Decision Process and My Wife Can’t Blame me anymore..

    🙂 Take care

    BTW: FYI?- After Interviewing over a Dozen FA’s before Retiring? NONE Recommended using Balanced Funds.. I suspect It’s a Blow to their Ego’s or admittance BF’s do as well or better than they can. And they have..

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