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Dale Jackson

Your Personal Investor

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With interest rates rising, global balanced funds could be on the brink of a tectonic shift.

If you invest in mutual funds, there’s a good chance you have a global balanced fund. It’s often the first fund an advisor will put you in. For the modest investor, a few hundred dollars can provide access to every stock and bond in the world — as well as a fixed income hedge against the risk of equity markets.

Even when our portfolios grow, we tend to replicate the stock/bond split in our portfolios to keep that hedge.

With interest rates — and bond yields — near zero over the past decade, many balanced fund managers have tossed aside the traditional model to find better fixed-income opportunities on the equity side. In some cases, a dividend stock provides a higher yield that a bond.

The benchmark for global balanced funds is split between the MSCI World Index on the equity side (60 per cent) and the Barclays Capital Global Aggregate Bond Index  on the fixed income side (40 per cent). Even with the drag on fixed income, the benchmark has managed to produce an average annual return of seven per cent over the past decade.

Global balanced funds have come in way below the benchmark, returning only four per cent annually over the same time.

But some global balanced fund managers have managed to play the stock/bond split by getting superior returns on the stock side and/or squeezing the most yield from the bond side. Ten-year performances range from 10 per cent annually after fees to a loss.     

The wide ranging performances proves that management matters when it comes to global balanced funds.