This Day On The Street
Continue to site
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

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 - Get Report). 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

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
DELL $0.00 0.00%
JOSB $64.98 -0.05%
MSFT $50.50 0.00%
AAPL $93.99 0.00%
FB $102.01 0.00%


Chart of I:DJI
DOW 15,973.84 +313.66 2.00%
S&P 500 1,864.78 +35.70 1.95%
NASDAQ 4,337.5120 +70.6750 1.66%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs