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A mutual fund that combines different investment categories in "hybrid" vehicles might sound like a good idea to an investor hopeful of a market rebound but wishing for a muted exposure to equities.

But someone tempted by hybrid funds as investments for these treacherous times should check their performance in August, when stock prices were still rising. Four of the five hybrid fund classes tracked by Ratings dropped in August, as can be seen in the left column in the accompanying table.

Nonetheless, a carefully chosen hybrid fund might be worth considering for someone convinced that the end of the investment world isn't at hand, but maybe a cautious reentry would be prudent.

In addition to the group averages, the table lists last month's top performer in each hybrid fund category.

Although most "asset allocation" funds portion their investments between stocks and bonds, the best fund in that group was recently 41% in cash and equivalents, with most of the remainder invested in long and short equities. The

1st Source Long/Short Fund


, Everyman's version of a hedge fund, jumped 3.4% in August to cap an advance of 5.4% during the past 12 months. It has rewarded its holders with a relatively low-volatility annual return of 8.2% over three years.

FMLSX, which will soon be part of the Wasatch Advisors family, has portfolio positions in such diverse companies as

Waste Management

( WMI),

Steak n Shake

( SNS),

Spectra Energy

(SE) - Get Free Report


Wal-Mart Stores

(WMT) - Get Free Report


The top performer in global asset allocation, the

UBS Dynamic Alpha A Fund

(BNAAX) - Get Free Report

bounced 2.9% in August but remains underwater by 3.4% for the past 12 months. Recently 70% in cash, 13% in stocks and 4% in bonds, the fund's three-year compound return is an anemic 2.6%. Although its name contains "Alpha," which is indicative of a hedge fund wannabe, its portfolio is primarily comprised of UBS open-end investment companies, with no short positions indicated.

The top dog among domestic balanced funds, the

Greenspring Fund

(GRSPX) - Get Free Report

sports a truly balanced portfolio of 11% cash, 55% stocks, 14% bonds and 20% convertible securities. But its style is a bit more aggressive than a run-of-the-mill balanced number.

"The fund invests in stocks that are believed undervalued at the time of purchase and special-situation bonds that have the potential to provide both capital appreciation and income," according to Greenspring's stated objective. "The fund may also invest in companies in the process of financial restructurings or liquidations."

GRSPX's portfolio selections, which include

FTI Consulting

(FCN) - Get Free Report


Suncor Energy

(SU) - Get Free Report

, generated a gain of 3.5% in August and 7.6% annually over the past three years.

Like many funds that focus internationally, the No. 1 global balanced fund,

Ivy Fund-International Balanced


, has been having a difficult time in recent months. Although it has returned 6% annually over the past three years, it is down 7.8% over 12 months and tumbled 2% in August.

IVBAX was recently 23% in cash, 56% in stocks and 20% in bonds, with major equity holdings in


(SNY) - Get Free Report


France Telecom



ING Groep

(ING) - Get Free Report


Among convertible bond funds, the leading performer for August, the

Vanguard Convertible Securities Fund


, has grown at an annualized 7.7% over the past three years, but has stalled since August 2007. As expected, considering its heritage, VCVSX's holders are levied the lowest expense ratio -- a slender 0.77% -- of the five hybrids on the list.

VCVSX's major holdings include convertible bonds in

Gilead Sciences


Teva Pharmaceuticals


Richard Widows is a senior financial analyst for Ratings. Prior to joining, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.