Investors are pumping record amounts of money into U.S. balanced funds, whose freedom to buy stocks and bonds made them barometers for gains in the biggest bull markets of the past half century.
Managers led by Capital Research & Management Co. and Invesco Ltd. received $35.2 billion from January to April, the most in any four months, according to data compiled by Bloomberg and the Washington-based Investment Company Institute. Assets in the funds increased 3.6 percent, compared with 1.2 percent for those that only buy equities.
While valuations and trading volume show individuals burned in the financial crisis have been slow to join the record-breaking rally in the Standard & Poor’s 500 Index, the growth of funds that now balance more than $1 trillion of stocks and bonds shows the reluctance is easing. Deposits with hybrid funds reached records in February 1994, when the S&P 500 was in the middle of a 417 percent gain, and in April 2004 amid a 101 percent rally.
“It shows the early stages of the healing process and reduction in this still pervasive negative psychology about the stock market,” Michael Holland, chairman of New York-based Holland & Co., which oversees $4 billion, said in a May 22 phone interview. “We’re four years into a bull market and levels of stock ownership remain very, very low.”
Fund Returns
The Holland Balanced Fund has beaten 96 percent of its peers in 2013 and 70 percent in the last five years, according to Bloomberg data. He has about 30 percent of the funds in investments other than equities, mostly short-dated Treasuries, and favors large-cap companies in the stock market. Among the top holdings are Home Depot Inc., Berkshire Hathaway Inc. and 3M Co., which have outperformed the S&P 500 by at least 3.1 percentage points this year.
The S&P 500 fell 1.1 percent to 1,649.60 in its first weekly decline since April 19 as Chinese manufacturing contracted and Federal Reserve Chairman Ben S. Bernanke said policy makers could “step down” the pace of asset purchases if the labor market improves. The equity benchmark climbed 1.2 percent to 1,669.23 at 11 a.m. New York time today.
Declines came as a report on Chinese manufacturing trailed economists’ forecasts, sending the Topix Index down 6.9 percent on May 23, the worst drop since the 2011 Fukushima disaster. The S&P 500 slumped four of the last five days.
Market Breadth
Even with the decline, 461 of the 500 companies in the benchmark U.S. gauge trade above their 200-day moving average are up for the year. The S&P 500 has risen 144 percent since bottoming in March 2009 during the worst financial crisis since the Great Depression.
Among the biggest managers in hybrid strategies, Los Angeles-based Capital Research’s American Balanced Fund, with 70 percent in equities and about 29 percent in bonds, saw assets increase 11 percent to $61.9 billion this year, compared with an 8.9 percent increase in the same period last year. The fund’s top three equity holdings are Home Depot, Chevron Corp. and Berkshire Hathaway.