In a world today of structured products such as equity-linked certificate deposits or even more complicated annuities, investment professionals tend to overlook long-term steady dividend-producing balanced mutual funds. The fund I want to talk about today is the American Balanced Fund (MUTF:ABALX). I personally enjoy owning anything that has "American" in its name, but this fund has more to offer than just its name.
10.13% Year-To-Date Return
When investors think of balance, sometimes they think it means sacrificing returns. This is not true. When looking below at the year-to-date chart, you can see that ABALX is doing pretty darn well owning both stocks and bonds.
Data by YCharts
Many qualified retirement account options like your 401(k) offer the ABALX fund in your approved list of funds to own. I take a pass after looking at expenses and performance on most funds I see within the menu of an employer-based plan. However, ABALX does a great job of being diversified within one easy-to-use product, and I would highly recommend an investor to take a second look at this one.
ABALX's Current Asset Mix
Looking at the current asset allocation of the fund, I noticed the heavy concentration in large-cap value stocks and short-term treasuries. I love this strategy. With risk of raising rates and risks of recession, I like that the fund managers are owning short-term treasuries alongside lower-volatility, large-cap common stocks.
Style Category Portfolio % Large-cap Value 34.86% Large-cap Growth 25.90% Mid-cap Value 0.00% Mid-cap Growth 0.00% Small-cap Value 0.00% Small-cap Growth 0.00% Global ex-US Developed Markets 3.79% Emerging Markets 1.33% Corporate Bonds 4.01% Long-Term Treasuries 0.00% Intermediate-Term Treasuries 9.09% Short-Term Treasuries 21.02%
(Source: PortfolioVisualizer.com)
I like where the current fund managers equity exposures are at and where the fixed-income allocations are at as well.
2.9% Yield To Worst
For yield-hungry investors, ABALX is yielding a 2.9% dividend. In today's world where investors are always looking at yield, American Funds does a great job of not only giving a nod to earning steady dividends but also focusing on producing capital appreciation in the total return profile. If you are looking for a long-term fund that throws off some yield, this one does a great job of that.
Risk Profile On ABALX
Anyone who is a follower of mine knows that I always run the risk metrics. When selecting any fund or investment, I urge you to run numbers like these to get a true idea of the risk you are taking. Let's dig in and take a look below at what some of these ratios are:
Risk Metric Arithmetic Mean (monthly) 0.84% Arithmetic Mean (annualized) 10.55% Geometric Mean (monthly) 0.80% Geometric Mean (annualized) 10.08% Volatility (monthly) 2.68% Volatility (annualized) 9.29% Downside Deviation (monthly) 1.65% Max. Drawdown -36.97% US Market Correlation 0.92 Beta(*) 0.57 Alpha (annualized) 3.52% R2 83.74% Sharpe Ratio 0.73 Sortino Ratio 1.12 Treynor Ratio (%) 11.99 Calmar Ratio 1.40 Active Return -0.84% Tracking Error 7.48% Information Ratio -0.11 Skewness -0.69 Excess Kurtosis 2.36 Historical Value-at-Risk (5%) -4.13% Analytical Value-at-Risk (5%) -3.57% Conditional Value-at-Risk (5%) -6.07% Upside Capture Ratio (%) 62.83 Downside Capture Ratio (%) 49.52 Safe Withdrawal Rate 9.63% Perpetual Withdrawal Rate 6.86% Positive Periods 281 out of 412 (68.20%)
(Source: PortfolioVisualizer.com)
My favorite and one of the easiest to use risk measurements for individual investors is to look at the beta. The mutual fund beta is a measurement of how a given fund reacts in a given period to the overall markets. ABALX's beta reading is at .57. This means the fund is only moving up and down with equity markets 57% of the time. This is great when being more prudent and diversified. The annual standard deviation comes in at 9.29%. This ratio shows us that you can assume your value within the fund will move around 9% up and down per year.
One other number I always use in presentations is alpha. The alpha reading is a measurement of what percentage a fund manager is yielding over the benchmark the fund follows in its by-laws. The alpha reading on ABALX is an impressive 3.52. This means in a given year, the fund is producing 3.52% over the annual return for its benchmark. I believe a fund manager should be paid when he is producing alpha over what his or her benchmark is producing.
ABALX Looking Forward
I should know better than to make forward-looking comments on mutual funds and securities. However, ABALX is a best-of-breed balanced mutual fund. Anyone in retirement, or anyone seeking to save for retirement, should consider a fund like ABALX. With its current asset allocation of 59% equities and 41% bonds and cash, I don't see why the fund won't continue to perform fairly. You could potentially increase your annual returns as well dollar-cost averaging on a month-end basis when the Net Asset Value has dropped.
If this article on ABALX interests you, I am planning on doing a follow-up article on research I have been doing on averaging in long term on this fund since 1985. Be sure not to miss it here on Seeking Alpha.
This article was written by
Josh Ortner
1.18K
Follower
s
Mr. Ortner is a published author in areas focusing on anti-money laundering and risk management. He focuses his writing on the importance in reviewing the fine prints of complex financial products and offerings. Mr. Ortner is currently a Certified Anti-Money Laundering Specialist. All articles are opinions of Mr. Ortner and should never be construed as personal financial advice.
Analyst’s Disclosure: I am/we are long ABALX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Ortner Capital provides consultation services and active management to clients who own ABALX. These opinions are that of Joshua A. Ortner, CTFA. Please consult a certified financial professional to see if ABALX is within your risk and age profile.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
