Cynthia Prince-Fox is a senior vice president with Ivy Investment Management Company and portfolio manager of the Ivy Balanced Fund (
What is a balanced fund?
PRINCE-FOX: The basic objective of a balanced portfolio is to provide a level of current income and capital appreciation that over a given time produces competitive returns on a risk-adjusted basis. Obviously with exposure to bonds, equities, and cash, there are times when pure equity portfolios outperform a balanced fund and periods when pure bond portfolios outperform; but over the longer term, the objective of a balanced portfolio should be to provide competitive returns with all-equity or all-bond portfolios.
Should an individual investor have a balanced fund in his portfolio or should the portfolio be a balanced fund?
PRINCE-FOX: The answer is “yes” to both questions. I tell people that a balanced fund makes sense, given the level of volatility we’ve witnessed the last five years. A balanced fund can isolate an investor from volatile swings.
I’ve been in the business for 27 years and a portfolio manager for 18 years, and I’ve never seen volatility quite like this, both on the down side and the up side. A balanced fund lines up with the objectives of the more conservative investor. I think a balanced fund could also be part of some investors’ larger portfolio, with the idea that they want to be in the market, but they want to dampen the level of volatility.
A balanced portfolio can serve that purpose.
What is the proper balance in a balanced portfolio?
PRINCE-FOX: The balanced category is broad in its definition. Twenty years ago, a balanced portfolio would have been 50/50 in terms of its allocation, 50% equities and 50% fixed income. To be a balanced portfolio today, you need to have at least 25% of your assets in fixed-income-like securities.
Within that category, some managers only buy government-type securities, others only quality corporates. Some may invest primarily in high-yielding or junk bonds, others in international bonds.
It’s similar with equity portion — you have managers with a small company mandate, others with a mid-cap or large-cap mandate, international, and so on.
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