The Big Screen: Born to Bore

Like the wallflower who takes off her glasses and emerges as the belle of the ball, balanced funds are looking pretty good these days.

Screen Gems

Small-Cap Growth Funds That Are Light on Risk

Mid-Cap Growth Funds, Without the Volatility

Big-Cap Growth Funds, With Less Risk

"Safer" Tech Funds

Foreign Funds for Investors with Wanderlust

These funds are basically born to bore. They hold both stocks and bonds, providing access to the stock market's growth potential with the bonds' steady interest payments for current income and stability in rough markets. It's not exciting, but for many investors it might be just what the doctor ordered -- if you're looking for lower-risk access to stocks, are buying your first fund, or are an aggressive short-term investor who wants to reduce risk.

So this weekend the Big Screen picks through this category -- "domestic-hybrid" in Morningstar's lexicon -- looking for funds with above-average performance, below-average risk and steady management. To round this bunch up, we screened the 350-fund category for funds that beat their average peer over the last one-, three- and five-year periods with the same manager. To make our cut, funds also had to have no more than 65% of their money in stocks and have held up better than their peers in down months over the last three years.

We ended up with a dozen funds that cleared those hurdles. Here they are ranked by their five-year annualized returns.

Leading Balanced Funds
Fund	5-Year Annualized	3-Year Annualized	1-Year Return
(ACEIX)Van Kampen Equity-Income	17.1%	16%	17.2%
(VAAPX)Vanguard Asset Allocation	15.8	12.3	6.7
(PFAAX)Preferred Asset Allocation	14.4	11.9	8.1
(WEBAX)Gabelli Westwood Balanced	14.2	10.8	10.2
(DODBX)Dodge & Cox Balanced	14	11.8	14.3
(ELDFX)Elfun Diversified	14	12.8	6.1
(VGSTX)Vanguard STAR	13.8	11.2	12.1
(VWELX)Vanguard Wellington	13.4	9.4	10.1
(ADBAX)Advance Capital Balanced	13.4	10.8	9.5
(PRWCX)T. Rowe Price Capital Appreciation	13.1	11.9	21.3
(SBALX)Victory Balanced	12.7	10.3	5.8
Avg. Balanced Fund	11.23	8.31	3.4
Source: Morningstar. Annualized performance figures through Jan. 10.

Before we look at some of these funds, keep in mind that when you buy a balanced fund you're not typically gunning for big gains. Over the last 10 years, the S&P 500 beats the average balanced fund's 11.8% annualized return by more than six percentage points. Then again, the average balanced fund's worst annual loss in the last 10 years was a modest 2.5% dip in 1994. Last year the S&P 500 tumbled more than 9%.

That resiliency has been a boon over the last 12 months as the average balanced fund stayed in the black, beating the S&P 500 by some 10 percentage points.

Hanging in the Balance While balanced funds have underperformed over longer time frames, they were a charm last year
	Avg. Balanced Fund	S&P 500
1-Year Return	3.4%	-6.7%
5-Year Return	11.2	19
10-Year Return	11.8	18.1
Source: Morningstar. Annualized performance figures through Jan. 10.

If you're buying your first fund or plan to hold just one fund, you might check out the no-load (VAAPX)Vanguard Asset Allocation or (VGSTX)Vanguard STAR fund. In running the Asset Allocation fund since 1988, co-managers Tom Loeb and William Fouse use quantitative models to opportunistically shift their allocations among stocks, bonds and cash. On Sept. 30, the pair had nearly half the fund in intermediate-term bonds, 35% in an S&P 500 fund and around 16% in cash.

It's often said that broad shifts between asset classes isn't easy, but this pair has done well. The fund beats at least 70% of its peers over the last one-, three-, five- and 10-year periods, according to Morningstar.

The Vanguard STAR fund holds nine of the firm's stock and bond funds, spreading its assets broadly across stocks and bonds. The fund typically maintains a 60% weighting in stocks, putting the rest of its money in bonds and cash. It tops three-quarters of its peers over the last one-, three-, five- and 10-year periods.

Two solid conservative funds on this list are the no-load (WEBAX)Gabelli Westwood Balanced fund and the no-load (DODBX)Dodge & Cox Balanced fund. The former is run by stock picker Susan Byrne and bond specialist Patricia Fraze. Both chart a methodical course, with Byrne investing around 65% of the fund in stocks where she sees unrecognized growth. Fraze invests the rest of the fund in a conservative portfolio of intermediate-term bond funds.

The fund, which the pair has run since its 1991 inception, has beaten at least three-quarters of its peers over the last one-, three- and five-year periods.

The Dodge & Cox fund, which has some 10 of the firm's stock and bond fund pros at the helm, has posted similar results with a similar strategy. About 60% of the fund is typically invested in stocks the managers believe are under-prices, with the rest of the fund going to a conservative portfolio of corporate and government bonds. The fund beats at least 80% of its peers over the last one-, three-, five and 10-year periods.

If you're looking for a racier fund, check out broker-sold chart-topper (ACEIX)Van Kampen Equity-Income fund, where lead manager Jim Gilligan typically keeps 65% or more of its assets in stocks. Gilligan, who has run the fund for more than 10 years, blends an aggressive-growth style with a more conservative value style in choosing stocks for the fund. The fund has maintained a solid risk profile despite its somewhat aggressive strategy and beats more than 95% of its peers over the last one-, three-, five- and 10-year periods.

Another racy choice might be the no-load (JABAX)Janus Balanced fund. This might be a good choice for aggressive investors or conservative investors who want access to the aggressive Janus stock-picking style with less downside risk thanks to its bond component.

The fund missed our cut due to higher volatility than its peers, a weak one-year return and manager Karen Reidy's brief tenure (she took the reins last year). The fund typically holds a blend of higher-priced growth stocks and high-yielding bonds. That could lead to some bumps along the way, but the fund has also rung up solid returns. The fund's 18.1% five-year annualized return beats 98% of its peers, but over the last 12 months its taste for expensive stocks has led to a 0.4% loss that beats the S&P 500, but trails more than 70% of its peers.

And there you have it, a range of balanced funds to think about over this long weekend.

>To order reprints of this article, click here: Reprints