This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Balanced Mutual Funds Offer Stability

Freeman varies the mix, emphasizing cheap holdings and steering away from investments that seem rich. He had 41% of assets in bonds in 2006. At the time, the federal funds rate was at 5.25%, and fixed-income yields seemed compelling. Now that the fed funds rate is close to zero, yields look puny, and Freeman has only 20% in bonds. As markets rallied in 2007, he had 14% in stocks. Now the stock allocation stands at 38% because price-to-earnings ratios seem modest.

Freeman looks for out-of-favor stocks with improving earnings and balance sheets. "We like stocks that face skepticism from investors," he says.

One holding is Microsoft (MSFT). In the past, the stock was too expensive for Freeman's taste.

But these days the P/E is at 9 because investors figure that the software giant is stuck in slow-growth markets. But Freeman says that the company can grow 10% annually, a solid rate. Another technology giant he likes is Dell (DELL), which sells for a P/E of 8. The shares trade for around $15, even though the company has more than $7 a share in cash. Investors fear that Dell's consumer business is slipping, but Freeman says that Dell's corporate sales remain solid. "Their profits don't depend heavily on consumers," he says.

Yield-oriented investors should take note of Thornburg Investment Income Builder. The fund aims to pay a substantial yield that will grow consistently. To accomplish the goal, portfolio manager Brian McMahon buys bonds and dividend-paying stocks from around the world. McMahon has a big stake in Europe because companies there tend to pay richer dividends. The recipe has generally succeeded. The fund currently yields 6.4%. During the past five years Thornburg has returned 4.3% annually, outdoing 78% of competitors in the world allocation category.

McMahon varies his allocations as market conditions change. He has raised equity holdings from 58% of assets in 2009 to 75% now. Based on yields, stocks appear unusually cheap compared to bonds, he says. For most of the last 50 years, stock yields were higher than bond yields. But in recent years, bond prices climbed, and the yields fell. Now there are instances where a company's bond yield is the same or lower than the stock yield.

McMahon likes the stock of AT&T (T). "The dividend yield on AT&T is around 6%, and it is hard to find a 6% yield on one of the company's bonds," he says.

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,172.68 -107.06 -0.62%
S&P 500 1,994.29 -16.11 -0.80%
NASDAQ 4,527.6890 -52.10 -1.14%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs