What Is a Blend Fund?
A blend fund (or blended fund) is a type of equity mutual fund that includes a mix of both value and growth stocks. These funds offer investors diversification among these popular investment styles in a single portfolio. Blend funds are a particular case of a hybrid fund.
- Blend funds are a category of equity mutual fund that invests in both growth and value stocks.
- The goal of a blend fund is to create a diversified portfolio that takes advantage of the capital gains potential of the growth segment and the dividend income and stability of the value segment.
- Because blend funds come in many configurations, investors should research each potential fund strategy and use a style box for easier categorization.
Understanding Blend Funds
Blend funds were developed to offer investors the advantages of value and growth investing. Value stocks and value funds seek to profit from undervalued investments identified based on fundamental characteristics. Growth stocks and growth funds seek to profit from companies with substantial potential for capital growth in the form of earnings and capital gains. Blend funds combine both types of investments in a single portfolio.
Investors commonly choose blend funds for their diversification. Portfolio managers typically manage blend funds from a specific investment universe. Often blend funds will focus their investments by capitalization. Therefore, investors can choose to invest in a large-cap, mid-cap or small-cap blend fund.
Investors should seek to clearly understand the allocation determinations of blend funds since they can be managed with various strategies. Generally, blend funds encompass an entire investment universe. Therefore, a blend fund can simply be an index fund which encompasses both growth and value stocks inherently in its compositions. Blend funds may also focus on a combination of capital appreciation, growth and income. Some blend funds may report defined investment allocations such as 40% growth stocks, 40% value stocks and 20% high quality bonds.
Blend Fund Research
It may be difficult to clearly identify blend funds because of the variation in investment strategies of the category. If an investor would like to invest in a blend fund they will typically need to work with an investment advisor or filter for blend funds using an investment resource such as U.S. News and World Reports or Morningstar.
Blend funds are a common category distinguished by fund research providers. Style box investment research was created and popularized to facilitate the identification of funds in various categories for investment such as blend funds.
Style box classifications are very helpful for differentiating investments by objective. A basic style box for stocks contains nine squares. The vertical axis is divided into three categories, which represent company size (large, medium and small) as determined by a fund's market capitalization. The horizontal axis is also divided into three categories based on the stocks in a fund's stock portfolio: value, value/growth blend and growth stocks. Investors seeking diversification to blend funds would choose to filter by stocks in the value/growth blend category.
Blend Fund Investments
Below are two examples of large-cap blend funds in the investment market.
MFS Blended Research Core Equity
The MFS Blended Research Core Equity fund seeks capital appreciation through investment in both growth and value stocks. The fund is benchmarked to the S&P 500 Index.
American Century Core Plus
The American Century Core Plus fund is a blend fund that seeks long-term capital growth. The fund invests in both growth and value stocks with the goal of outperforming the broad U.S. stock market.
Blend Fund vs. Balances Fund
As both "blend"and "balanced" describe the particular asset mix of mutual funds, determining the exact distinctions between the two can be difficult.
Blend funds, which contain only stocks and no fixed-income securities, are a type of equity fund that holds a mix of both growth stocks and value stocks. The goal of these funds is to appreciate in value by means of capital gains generated primarily from the growth portion and income derived from the value portion.
Balanced funds, on the other hand, are a type of asset allocation fund that contains a mix of fixed-income instruments and equities. The asset mix is usually constrained to fixed proportions. For example, a fund could have an asset mix consisting of 40% equities, 50% bonds, and 10% money market instruments. The goal of balanced funds is to achieve both growth in value and consistent income. Depending on the type of portfolio management, balanced funds will be either re-balanced every year in order to return the proportions back to their original state or restructured to favor market conditions.