The first quarter of 2008 is soon to be history, and global markets have been very volatile. Major indexes are down substantially year-to-date including the S&P 500, FTSE 100, Nikkei 225 and the DAX. It's grim indeed, but there are markets doing well in this skittish environment.

According to Bespoke Investment Group, 26 out of 75 countries are in the black, proving there's always a good buy somewhere in the world. That's where hybrid funds come into play. Often referred to as asset allocation or balanced funds, they give portfolio managers the freedom to invest where they please in order to produce the expected returns their fund mandates call for. With so many options available to investment professionals, they are both a blessing and a curse. (For more information on fund management style, read What is the difference between a blend fund and a balanced fund?)

What Are They?
Hybrid fund managers use a top-down approach to their investing, first selecting the asset allocation for a portfolio, then deciding on the countries/industries best suited for any particular point in time, and then finally making individual investments based on those decisions. No stone goes unturned in an effort to maximize return and reduce risk, providing investors with good returns without the volatility. Over extended periods, they are extremely effective.

Two Hybrid Funds Worth Considering
Global stock markets have been miserable in 2008, and only two categories have positive returns - Domestic Bear Market and International Precious Metal funds. Year-to-date they've returned 11.93% and 14.52% respectively. That's great; but it doesn't help those currently searching for safe havens. Where should they turn to invest? Well, for those who don't choose cash or fixed income, we'll examine two funds that may just be the ticket. (To find out more about risk in mutual funds, see Is Your Mutual Fund Safe?)

Waddell & Reed Advisers Asset Strategy Fund (UNASX)
Since its inception March 9, 1995, this fund has been superb, returning 13.01% annually to its investors (sales charge included). In the last three years, it's beaten the S&P 500 by 17.65% annually, 26.27% to the indexes 8.62%. The fund has been managed by industry veterans Michael Avery and Daniel Vrabac since 1997, and $10,000 invested in 1997 when the duo took over, is worth $39,904 today. The fund's $3.1 billion invests 36% of the portfolio in the United States, mostly in large cap growth stocks with a median cap of $20 billion. Lipper gives it a 10-year ranking in the top sixth percentile among flexible portfolio funds. Finally, in the last 40 quarters to the end of 2007, it's had 30 with positive returns. The last down year was in 2001; year-to-date it's up 0.79%; with an expense ratio of 1.20%. What more could you ask for? (To discover how expense ratios impact your mutual fund's performance, see Stop Paying High Fees.)

BlackRock Global Allocation A (MDLOX)
This fund has been managed by a team of professionals since October 21, 1994, several who came over in the merger with Merrill Lynch Investment Managers in 2006. It's been equally as successful as the Waddell & Reed fund, producing annual returns of 12.31% (sales charge included) and three-year annual returns of 12.26%. This is one huge fund with total assets of $23.5 billion and an average market cap of $75.3 billion. It holds a total of 652 stocks or bonds with 47.9% invested in the United States. While its 10-year annual return is only 11.09% compared to 14.16% for Waddell & Reed, in the last 40 quarters to the end of 2007, it's had 32 with positive returns. Year-to-date it's down 0.61% with an expense ratio of 1.03%. Most importantly, the fund has 9.4% of its holdings in cash, waiting to strike when the opportunity presents itself. (To learn how to find data for the mutual funds in your portfolio, see Read Your Mutual Fund's Annual Report.)

Bottom Line
Both funds worst one-year return is less than 11% while each has a best one-year return greater than 35%. While the Waddell & Reed fund is clearly the superior performer, both would make excellent core holdings for any investment portfolio.

Learn to narrow down your list of mutual funds from thousands of choices by reading Picking The Right Mutual Fund.

Related Articles
  1. Investing Basics

    Explaining Options Contracts

    Options contracts grant the owner the right to buy or sell shares of a security in the future at a given price.
  2. Home & Auto

    When Are Rent-to-Own Homes a Good Idea?

    Lease now and pay later can work – for a select few.
  3. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  5. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  8. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  9. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  10. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Derivative

    A security with a price that is dependent upon or derived from ...
  3. Security

    A financial instrument that represents an ownership position ...
  4. Series 6

    A securities license entitling the holder to register as a limited ...
  5. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
  6. Board Of Directors - B Of D

    A group of individuals that are elected as, or elected to act ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!