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7 Funds to Rebuild Your Nest Egg for 2012

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Franklin Convertible Securities (FCSVX), a "balanced convertible" fund, has ranked among that category's best performers over the past two years.

These funds exhibit a blend of bond-like traits, including paying a fixed amount of interest every year to investors and equity-like traits since the bonds can be exchanged, or converted, for stock of the issuing company at a preset price and stand to get share-price gains.

They are complex investments, which is why buying such mutual funds can be a good way to gain defensive exposure to stocks. In theory, they're structured to provide much, but not all, of equities' upside with less of their downside risk. But there are no risk-less investments.

Last year marked the second straight year that convertibles outperformed stocks in general. They bounced off historic lows in 2009, returning 46% on average, beating the S&P 500 by 14 percentage points. Last year, the convertibles category averaged a 16.7% return, outdoing the S&P 500's 15%.

Franklin Convertible has a great long-term record with an average annual gain of 9.2% since 2002. It also has a dividend yield of 4.1%.

Its top holdings include convertible securities, which aren't traded on an exchange. The top firms it owns include securities of videogame maker International Game Technology (IGT), electric utility Great Plains Energy (GXP) and microcontroller maker Microchip Technology (MCHP).

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