A hybrid fund is an investment fund that diversifies its portfolio across two or more asset classes. Typically, hybrid funds invest in a mix of stocks and bonds, and are sometimes known as asset allocation funds.
Key Takeaways
- Hybrid funds are a type of mutual fund or ETF that invests in various asset classes to create a diversified portfolio.
- Balanced funds that generally hold a mix of 60% stocks and 40% bonds are a common example of hybrid funds.
- Blended funds, which combine growth and value stocks, are another example of hybrid funds.
Decoding Hybrid Funds
Hybrid funds offer investors a diversified portfolio, indicating that the fund invests in multiple asset classes. This diverse strategy capitalizes on modern portfolio theory in fund management, and may adopt either conservative, moderate, or aggressive risk profiles:
- Balanced Funds: Typically follow a standard asset allocation ratio, such as 60/40 between stocks and bonds.
- Target-Date Funds: Also known as lifecycle funds, these are structured with an aggressive initial investment allocation that becomes progressively conservative as it approaches the target date.
- Blend Funds: A mix of both value and growth stocks providing diversity across these two popular investment strategies.
Regardless of type, hybrid funds always combine two or more asset classes. While risk-targeted and balanced funds maintain fixed allocation ratios, target-date funds dynamically adjust according to the approaching utilization date. Investment managers may tweak individual holdings to adapt to market changes and enhance capital appreciation potential.
Exemplary Hybrid Funds
Discovering Market Options for Hybrid Funds
Vanguard Balanced Index Fund (VBIAX)
This flagship fund maintains a 60/40 stock-to-bond ratio. The stock portion mimics the CRSP U.S. Total Market Index, while the bond part imitates the Bloomberg U.S. Aggregate Float Adjusted Index. The fund offers an expense ratio of 0.06% as of Q2 2021.
T. Rowe Price Retirement 2060 Fund (TRRLX)
A stellar example of a hybrid target-date fund, the T. Rowe Price Retirement 2060 Fund held over 90% stock and around 8% bonds and other fixed-income securities as of May 2021. Employing a fund-of-funds approach, nearly 19% of the portfolio is dedicated to a growth stock fund. With an expense ratio of 0.71% as of Q2 2021, it’s designed for long-term retirement investment.
Related Terms: Balanced Funds, Target Date Funds, Blend Funds, Modern Portfolio Theory, Asset Allocation.
References
- Vanguard. “Vanguard Balanced Index Fund Institutional Shares (VBAIX)”.
- T.RowePrice. “Retirement 2060 Fund (TRRLX”).
