Best Hybrid Funds Walk the Stock-Bond Line

The best-performing hybrid funds in the second quarter struck the correct balance between equity and fixed-income investments.

The best-performing hybrid fund from March 31 to June 30 is the CGM Mutual Fund(LOMMX Quote). This fund gained 14.25% in the second quarter on stellar performances by United States Steel(X Quote), up 45.86%; Cummins(CMI Quote), up 40.19%; and Petroleo Brasileiro(PBR Quote), up 39.05%. As measured at the beginning of the period, the fund balanced these equities with 26.4% of net assets invested in United States Treasury Bills. This is in line with the stated objective target of 25% in fixed income.

The second-place hybrid fund, Fidelity Convertible Securities Fund(FCVSX Quote), returned 10.60% with its strategy of investing at least 80% of fund assets in convertible securities, including both debt and preferred shares. This strategy may provide some downside protection, because convertible securities, which are income-paying instruments, trade like bonds when the underlying stock price is low, while retaining upside potential as a company's stock rises.

The largest preferred holdings of the A-rated Fidelity Convertible Securities Fund include those of El Paso Corp.(EP Quote), Celanese Corp.(CE Quote), Freeport-McMoRan Copper & Gold(FCX Quote) and Bank of America(BAC Quote). The fund also holds the convertible debt of Halliburton(HAL Quote) and Peabody Energy(BTU Quote). ...