October 5, 2006 5:19 AM
Morningstar Fund Pick: Fidelity Balanced (FBALX)
I don't usually favor balanced or blend funds. If you need more diversification, lifecycle funds may be a good pick. However, since Morningstar gives this fund a 5-star rating, and it is backed by the Fidelity name, Fidelity Balanced (FBALX) may be worth a look.
From Morningstar:
Moderate-allocation funds' tendency to move up the market-cap ladder in recent years isn't surprising given the torrid run of mid- and small-cap stocks has led many of these firms to appear overvalued. This fund has followed that path: Its average market cap has risen from approximately $9 billion at the beginning of 2004 to $13.3 billion currently. The fund still has significant exposure to smaller-cap stocks relative to peers, however; the group's average market cap is $28.4 billion.
Although the fund's tilt toward smaller companies proved a performance tailwind in recent years, manager Larry Rakers deserves the lion's share of credit for the fund's success. Since taking over in early 2002, he's been bullish on stocks compared with bonds, and has therefore allocated nearly 70% of assets to equities. In 2006 he has pared that weighting back slightly to 64%, because the stock market's run over the past couple of years, combined with stalling economic indicators of growth, has made him a bit more cautious. The bond portfolio's management team has also pulled in its reins, redeploying gains on high-yield positions into higher-quality debt and Treasuries, citing that lower-rated debt isn't worth the additional risk at current valuations.
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