A portfolio that offers a mix of both equity and fixed-income investments may be ideal for those who are confused about the market trend in the near future. With the first-quarter earnings season nearing its end and uncertainty over rate hike taking the front seat, investing in balanced mutual funds may prove profitable.
Balanced mutual funds that invest 30-50% of their assets in equity securities have registered an average return of 2.2% in the year-to-date frame, the highest among the allocation mutual fund categories, according to Morningstar. Also, this was the best-performing segment among the allocation mutual fund categories over the past one month. So, favorably ranked mutual funds form the above-mentioned category may be lucrative investment propositions.
June Hike in the Cards
The minutes from the Fed's policy meeting in April that released yesterday showed several Fed officials' verdict of a hike next month if the U.S. economy continues to show signs of improvement. The minutes stated:
"Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor markets continued to strengthen, and inflation making progress toward the committee's 2 percent objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June."
Separately, San Francisco Fed President John Williams recently said that following continued moderate growth, two to three rate hikes this year "makes sense." "The data" he added, "are lining up to make a good case for rate increases in the next few meetings, not just June." Also, Atlanta Fed President Dennis Lockhart said that the recent "encouraging" inflation data showed a growth in U.S. economy. High-quality global journalism requires investment. He added that "if the data continue to be encouraging" he would "certainly entertain some policy move in June."
Though some of the Fed officials showed concerns over sluggish first-quarter growth and weak global growth conditions, most of pointed to "the steady improvement in the labor market as an indicator that the underlying pace of economic activity had likely not deteriorated." The significant rise in possibilities of a raise in June led investors to doubt market movement.
Oil Price Fluctuations Persist
As the first-quarter earnings season is almost over, oil price movement and economic data are likely to set the market trend in coming days. Despite the recent rally, oil prices continued to witness fluctuations as major oil-producing nations failed to reach an agreement on production freeze. Russia's Energy Minister Alexander Novak's discouraging comments weighed down on oil prices. Novak recently said that as the global crude surplus remained at 1.5 million barrels per day (bpd), "(the outlook that the market won't balance until the first half of 2017) is an optimistic forecast as oversupply persists."
However, the recent positive outlook from Goldman Sachs Group, Inc. gave a boost to oil prices. Goldman Sachs said that oil market encountered a deficit in crude output following production disruptions in Nigeria and Canada. Goldman also said that "the oil market has gone from nearing storage saturation to being in deficit much earlier than" it expected. The firm also projected that WTI crude may reach $50 per barrel in the second half of this year and register modest increases in 2017. Thus, uncertainty regarding crude price movement in the coming months also raised doubts over market movement in near future.
4 Balanced Funds to Buy
In this scenario, we have highlighted four Balanced Mutual Funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) and allocate between 30% and 50% of their assets in equity securities. We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
Moreover, these funds have encouraging year-to-date, three-year and five-year annualized returns. The minimum initial investment is within $5,000. Also, these funds have a low expense ratio and carry no sales load.
Vanguard Wellesley Income Fund Inv (MUTF:VWINX) invests 60-65% of its assets in investment-grade debt securities issued by corporate, U.S. Treasury, and government agencies. The fund allocates the rest of its assets in common stocks of companies with a solid track record of dividend payments.
VWINX has year-to-date, three-year and five-year annualized returns of 4.7%, 5.5% and 7.4%, respectively. Annual expense ratio of 0.23% is significantly lower than the category average of 0.80%.
Berwyn Income Fund Inv (MUTF:BERIX) invests in both equity and fixed-income securities. While the fund invests in fixed-income securities including debt securities of both the U.S. government and corporate entities, and mortgage-backed securities, it also invests in undervalued common stocks of companies that pay dividends.
BERIX has year-to-date, three-year and five-year annualized returns of 3.6%, 3.6% and 5.2%, respectively. Annual expense ratio of 0.64% is significantly lower than the category average of 0.80%.
American Century One Choice Portfolio Conservative Inv (MUTF:AOCIX) allocates 45%, 49% and 6% in underlying funds, which in turn invest in stocks, bonds and cash equivalents, respectively.
AOCIX has year-to-date, three-year and five-year annualized returns of 2.5%, 3.9% and 5.4%, respectively. Annual expense ratio is 0% compared to the category average of 0.80%.
T. Rowe Price Retirement Balanced Fund Adv (MUTF:PARIX) invests in both stock and bond funds of T. Rowe Price. PARIX created a diversified portfolio by investing 60% in underlying bond funds and the rest of the assets in underlying stock funds. The proportion of asset allocations is considered ideal for investors' retirement years, according to T. Rowe Price.
PARIX has year-to-date, three-year and five-year annualized returns of 2.5%, 2.7% and 4.2%, respectively. Annual expense ratio is 0.25% compared to the category average of 0.80%.