Balanced accounts - asset allocation of balanced mutual funds - Brief Article - Statistical Data Included

Black Enterprise, July, 2000 by Ivan Cintron

For hybrid stock and bond funds, asset allocation is crucial

Brokerage firms have a recommended asset allocation mix for average investors: 60% stocks, 35% bonds and 5% cash, give or take a percentage point. But for portfolio managers who run balanced mutual funds, also called domestic hybrid portfolios, a greater emphasis on technology stocks (surprise!) and a smaller bond component have spelled success this year.

Balanced funds in the top tier, with a flexible blend, have outperformed most market averages this year. Some of the managers of these portfolios did better than their peers partly because more than 70% of their funds' assets were in equities. Others who stuck to the more traditional stocks-to-bonds asset mix reaped the rewards of a heavy weighting in high-flying technology stocks and shorter-maturity bonds.

Through April 28, 2000, the average balanced fund had a cumulative total return of 0.71%, according to Morningstar, a mutual fund research firm in Chicago. That's slightly better than the negative return of 1.14% for the Standard & Poor's 500-stock index for the same period.

One fund that did much better than its peers was the $45 million Green Century Balanced fund (Nasdaq: GCBLX), an environmentally responsible fund. It returned a whopping 20.95% year-to-date through the end of April, landing it among the top five, according to Morningstar.

"The only thing we do is invest in green and clean companies," says Jack Robinson, manager of Green Century Balanced. "Companies that have integrated environmental thinking into their strategies will be more profitable and provide a greater return to their shareholders" over time, he maintains.

Robinson, who is also president of Winslow Management Co. in Boston, the subadvisor to Green Century Balanced, says that since the portfolio must have 25% of its assets in bonds, he likes high-yielding, intermediate-term corporate bonds. Some of his bond holdings include Sparkling Spring Waters, with an 11.5% coupon maturing in November 2007, currently sporting a yield of 14%; and Kindercare Learning Centers' bonds with a 9.5% coupon, maturing in 2009 and yielding around 10%.

As for the stock component, he likes high-tech companies with good growth rates. The top holding in his portfolio is NetOptix (Nasdaq: OPTX), a maker of light-based fiber-optic equipment and filters. The company is being acquired by Corning (NYSE: GLW), a diversified technology firm--a perfect fit because NetOptix's business will complement Corning's fiberoptics division. Also, both adhere to "green" business practices.

Then there's the $13 million Avondale Hester Total Return fund (Nasdaq: AHTRX). John Gunthorp, co-manager, explains that the fund is more a flexible rather than a balanced portfolio. As much as 90% of the portfolio has been in stocks--currently, it's around 88%. And about 35% of those equity positions are in technology companies.

Gunthorp, who is also executive vice president of Hester Capital Management in Austin, Texas, says he tries to find companies whose "fundamentals are starting to improve along with balance sheet improvement," and buy them before other investors notice their inherent value. Among his top stock holdings are General Electric (NYSE: GE), about 8% of assets, and Adobe Systems (Nasdaq: ADBE), about 7% of assets. Currently, the fund has about 10% in bonds, mainly in agency securities like those issued by the Federal Home Loan Bank Board.

The large concentration in stocks helped the Avondale Hester fund achieve a 9.17% return, still higher than its peer group.

But before you use a balanced mutual fund as a proxy for asset allocation, examine the prospectus carefully to make sure it reflects the mix most suitable for your long-term investment goals.

TOP 5 DOMESTIC HYBRID FUNDS

Fund Name (Ticker)                  Year-to-date        1-Year
                                   Total Return(*)   Total Return

Smith Barney Security Growth
 (SAFEX)                                22.01           21.05
Green Century Balanced (GCBLX)          20.95           76.39
One Fund Income & Growth (ONIGX)        10.36           11.00
Avondale Hester Total Return
 (AHTRX)                                9.17            15.07
Thompson Plumb Balanced (THPBX)         8.04             8.87
Domestic Hybrid Fund Averages           0.71             8.49

Fund Name (Ticker)                     3-Year           5-Year
                                    Total Return     Total Return

Smith Barney Security Growth
 (SAFEX)                                8.57             N/A
Green Century Balanced (GCBLX)          23.61           22.76
One Fund Income & Growth (ONIGX)        12.24           15.33
Avondale Hester Total Return
 (AHTRX)                                17.90           17.13
Thompson Plumb Balanced (THPBX)         15.96           18.15
Domestic Hybrid Fund Averages           13.31           15.83

Fund Name (Ticker)                    Toll-Free        Minimum
                                       Number          Initial
                                                      Investment

Smith Barney Security Growth
 (SAFEX)                            800-451-2010        Closed
Green Century Balanced (GCBLX)      800-934-7336        $2,000
One Fund Income & Growth (ONIGX)    800-578-8078          500
Avondale Hester Total Return
 (AHTRX)                            800-282-2340        1,000
Thompson Plumb Balanced (THPBX)     888-999-0887        1,000
Domestic Hybrid Fund Averages