Skip to main content

The Globe and Mail

What investors can learn from balanced mutual funds

Investing headlines are dominated these days by falling stock markets, but that doesn't mean your portfolio is bleeding badly.

Balanced portfolios – holding bonds and stocks from Canada, the United States and internationally – fared reasonably well for the year through to Aug. 24. This was a period when the S&P/TSX composite index fell 10.8 per cent amid falling oil prices and concerns about China's economy and its impact on global growth. For some comparable returns from diversified portfolios, let's look at what some of the country's better balanced mutual funds have done in 2015.

Mawer Balanced Series A, a fund I own, was up 5.1 per cent for the year to Aug. 24. Canadian bonds accounted for 31 per cent of the portfolio at mid-year. Fidelity Canadian Balanced Series B, with about 35 per cent of its assets in domestic bonds at mid-year, was up 4.5 per cent. PH&N Balanced Series D, with about one-third of its holdings in domestic bonds, was up 1.2 per cent.

Story continues below advertisement

Investors can learn a couple of things from these funds. First, a domestic bond weighting of one-third seems to be working well for them. That's not to say a 70-30 stock-bond mix is right for you, but it does give you a starting point for your own portfolio. Second, diversification has given these funds some distance from the TSX's problems.

Telling investors to diversify when stocks are strong is like urging your kids to brush their teeth or risk gum disease. But when stocks fall, they usually inflate a bond market life raft for diversified investors. If you've pounded down your bond holdings, you have less buoyancy and thus are at risk of losses that closely track the index.

Never think that diversification will keep you clear of losses. When the S&P/TSX composite fell about 33 per cent in 2008, the three previously mentioned balanced funds lost an average 17.7 per cent on the year. That's a tremendous hit to take in a balanced fund, but on the bright side it's just half of what the stock market lost.

Report an error Editorial code of conduct Licensing Options
As of December 20, 2017, we have temporarily removed commenting from our articles as we switch to a new provider. We are behind schedule, but we are still working hard to bring you a new commenting system as soon as possible. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.