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One conundrum confronting many investors in these uncertain times is this: On the one hand, some exposure to equities is needed so as not to miss the start of a new bull market, once one begins; on the other hand, it would be nice to know there is some sort of cushion in case the bear market isn't finished.

If the occasional rally is tempting you to get into equity funds but the more frequent selloffs make the thought of "dividend cushions" appealing, then check the seven funds in the accompanying table. Each has a grade from Ratings in the "A" and "B" range -- equivalent to buy recommendations. In addition, these funds offer some protection with higher-than-average yields. Each of the funds is at least 50% invested is equities, with a few even achieving attractive yields while being close to 100% on the equity side.

With two utility funds, a pair of real estate investment trust vehicles and others with blends of stocks and bonds -- both domestic and international -- the table below offers a wide selection of ways to maintain some equity exposure with the possibility of yields as defensive hedges against further stock market erosion.

American Century Utilities ( BULIX) describes itself as a fund "for investors seeking to diversify their equity portfolio." Its investment strategy uses both "quantitative and qualitative management techniques as well as risk controls to build the portfolio."

BULIX's holdings include utility mainstays AT&T ( T), Verizon ( VZ) and Public Service Enterprise Group ( PEG).

'Yield-Cushioned' Equity Funds for Uncertain Times
Name (Ticker), Ratings Grade
Yield (%)
3-Month Total Return (%)
12-Month Total Return (%)
3-Year Annual Return (%)
% of Portfolio in Equities
American Century Utilities Inv (BULIX), B
American Funds Inc Fnd of Amr A (AMECX), B- *
Gabelli Utilities A (GAUAX), A- *
Oppenheimer Quest Opporty Val A (QVOPX), B+ *
Rochdale Dividend & Income Port (RIMHX), A *
Stratton Monthly Dividend Reit Shs (STMDX), B-
Vanguard REIT Index Inv (VGSIX), B-
* Front-end sales charge may apply.
Source: Ratings (Data as of 9/30/2008).
For more information, check out an explanation of our ratings

The giant American Funds Income Fund of America ( AMECX) "seeks to provide current income while secondarily striving for capital growth."

"Multi-dimensional diversification" might be an apt description to AMECX's approach to investing. The fund may invest up to 25% of its assets in U.S.-based stocks that are not included in S&P 500. "In addition, the fund may invest up to 20% of its assets in lower quality, higher yielding nonconvertible debt securities. The fund may also invest up to 10% of its assets in debt securities of non-U.S. issuers, however, these securities must be denominated in U.S. dollars," according to the fund's description.

Top holdings of AMECX include Chevron ( CVX), General Electric ( GE) and Merck ( MRK).

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