Balanced funds also get support from Adam Bold, founder of the Mutual Fund Store, an Overland Park, Kansas-based investment advisory firm. “Balanced funds are always somewhat of a safe haven because they offer some downside protection as well as upside growth potential,†he says. Among his favorites are James Balanced: Golden Rainbow Fund (GLRBX) and Permanent Portfolio (PRPFX), which holds precious metals; Treasury bonds; stocks; and assets denominated in Swiss francs. Permanent, which lost 8.4% in 2008, has a 10-year return of 8% that is considered among the best of all balanced funds. Says Dean Barber of Barber Financial Group in Lenexa, Kansas: “It’s a one-stop shop for hedging against inflation. The manager has done an impressive job which has served his shareholders well.â€
Corporate bond funds. While investors flocked to Treasuries in 2008, many ditched corporate bonds. That’s a trend that may change in the coming year. “From a risk-return perspective, investment grade corporate bonds may be more attractive than stocks now,†says Morningstar’s Jones. Why? Bonds issued by solid companies trade at depressed prices so yields are up. Funds holding such bonds offer yields as high as 6% or more these days. If the economy strengthens and high-quality corporate bonds regain some of their value, investors could enjoy double-digit returns historically produced by equities–without bearing stock-fund volatility. Among funds holding high-grade corporate bonds, Westcore Plus (WTIBX), which lost less than 2% last year, boasts a strong 10-year return of 5.35% through January 2009.
Municipal bond funds. The story here is similar to the one for corporate bonds. Fearing that a weak economy will cause fiscal problems for states and cities, among other technical market factors, investors have sold municipal bonds. As a result, prices have dropped. Funds holding highly rated issues now yield 4% or more. What’s more, municipal bond interest is exempt from federal income tax. [See “Getting More for Your Muni,†Moneywise, February 2009.] Bold’s selections of muni bond funds include T. Rowe Price Summit Municipal Intermediate Fund (PRSMX) and American Century Tax-Free Bond Investment Fund (TWTIX), both of which had scant losses last year and boast 10-year returns in the top 15% of their category.
Convertible bond funds. These funds hold bonds and preferred stocks that can be converted into the issuer’s common stock. “They give you the opportunity to focus on income during a down market and also take advantage of capital appreciation in an up market,†says Tracy Brown, a financial adviser with William Tell Financial Services in Latham, New York. “Although there are no foolproof mutual funds out there, a convertible bond fund and an intermediate-term bond fund can help investors who are looking for wealth preservation.†Among convertible bond funds, Brown is attracted to Franklin Convertible Securities Fund (FISCX), which currently yields more than 8% and has one of the category’s best 10-year records.