Pimco, TIAA-CREF Top Hybrid Funds
The taint from Bernard Madoff's alleged Ponzi scheme has made investors think twice about choosing fund of funds or other hybrid fund objectives whose investment strategy is murky.
In light of the recent events, let's review the best-performing hybrid open-end mutual funds in December that go beyond usual fund categories and appear to have largely sidestepped the Madoff scandal.
These mutual funds, largely holding a mix of stocks and bonds, are considered alternative or hybrid strategies. The hybrid category also includes funds with target asset allocations, balanced portfolios, derivative strategies and flexible portfolios.
The best-performing hybrid fund we tracked in December, PIMCO RealEstateRealReturn Strategy Fund (PRRSX), jumped 25.9% during the month. The fund balances the risk of real estate derivatives, such as REIT total return swap agreements, with a portfolio of inflation-protected government securities and other fixed-income instruments.The theory behind this investment strategy is that, for a fraction of the cost of owning all the securities in the benchmark Dow Jones Wilshire Real Estate Investment Trust Index, index derivatives like options, futures and structured notes can be purchased to achieve a similar real estate sector exposure. The second best hybrid fund for the month was the TIAA-CREF Institutional Real Estate Securities Fund (TIREX), up 17%. The fund allocates a minimum of 80% of assets in the stocks and debt of real estate companies. However, currently, the only fixed-income securities in its portfolio are a small amount of U.S. Treasuries. A total of 96% of the fund is made up of individual equity holdings, including Simon Property Group (SPG), shares of which were up 11.9% in December; Vornado Realty Trust (VNO), up 12.9%; Public Storage (PSA), up 15.8%; and HCP (HCP), up 34.4%.
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