What Made Top Hybrid Funds Work

The best-performing hybrid funds for the second quarter comprised one convertible fund, the Fidelity Convertible Securities Fund(FCVSX Quote), and two domestic focused balanced funds -- namely, the CGM Mutual Fund(LOMMX Quote) and the Evergreen Diversified Capital Builder Fund(EKBAX Quote).

Fidelity's convertible fund returned 10.6% for the three months ended June 30 employing a strategy of investing in lower-quality convertible debt securities (50% allocation) and preferred stock (31% allocation). The fund seeks to earn a high level of total return -- i.e., income and capital appreciation -- and has been aided in this quest by its allocation of 11.5% in the oil and gas sector and 6.51% in oil and gas services, which enabled it to capitalize on the run-up in energy. The other sectors in its portfolio include chemicals (8.53%), semiconductors (6.66%), mining (5.49%) and banking (5.42%).

The CGM Mutual Fund(LOMMX Quote) was the top-performing mutual fund, returning 14.25% for the quarter.

Manager Ken Heebner looks to equities to generate his returns with a 75% allocation and approximately 25% in debt securities. The key to his performance seems to be his sector allocations, with 26% of assets being deployed in the mining sector, 17% in iron/steel, 14% in oil and gas, 6.29% in oil and gas services. This allocation positioned the fund to profit from performance of the energy and natural resources sector. ...