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HIGH RETURN LOWER-RISK STOCK FUNDS

- Alan Lavine and Gail Liberman



If you could earn the same return as the average stock fund and lose less on the downside, would you do it?

That may be a lot easier than trying to pick a winning hot fund based on past performance.

There are some well-managed balanced funds that outperform domestic stock funds, based on data of Morningstar Inc., Chicago.

Balanced funds typically keep 60 percent in stocks and 40 percent in bonds. Historically, a 60 percent-40 percent stock-bond mix has grown at a 9 percent annual rate over the past seven decades. But this mix is almost 50 percent less volatile than a 100 percent stake in a diversified U.S. common stock fund.

Some funds have managed to do better. Even though they don't have all their money in stocks, they beat most funds that were 100 percent invested in stocks. So a well-managed balanced fund could be a substitute for a bond and a large company growth or value fund in an investor's portfolio.

There are more than a dozen balanced or asset-allocation funds that have outperformed the average U.S. stock fund over the past 10 years. The managers of these funds have exhibited superior stock picking abilities while reducing risk by investing in bonds.

Be advised that past performance is no indication of future results.

Nevertheless, these funds have been on the right track for 10 years. In this current bear market, balanced funds registered strong compared with the market. The reason: Their bonds increase in value as interest rates declined. In addition, many owned beaten-down large company stocks that have rebounded after several poor years.

But some of the funds invest in large company growth stocks and bonds. Growth stocks are out of favor now but once the economy picks up steam and their earnings improve, these types of stocks should rebound.

The average domestic stock fund has grown at a 10.89 percent annual rate over the past 10 years ending in September 2001.

  • Dodge & Cox Balanced, up 13.02 percent.
  • Fidelity Puritan, up 11.85 percent.
  • Gabelli Westwood Retirement Balanced, up 12.05 percent.
  • Janus Balanced, up 12.60 percent.
  • T. Rowe Price Capital Appreciation, up 12.60 percent.
  • George Putnam Fund, up 11.02 percent.
  • Vanguard Asset Allocation, up 11.96 percent.
  • Vanguard Star, up 11.28 percent.
  • Vanguard Wellington Fund, up 11.96 percent.

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Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books).


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