Seeks to provide a diversified, medium volatility option that balances assets that traditionally have higher growth potential with others that typically are more stable and/or tend not to move in lock-step.
The Balanced Fund blends U.S. and international stocks with some bond market exposure. A portion is also invested using a tactical asset allocation strategy.
The Balanced Fund’s equity (stock market) exposure is very well diversified globally. The Balanced Fund invests in the most developed economies, such as the United States and England, as well as emerging markets, such as China and India.
Each segment of the pie chart is also diversified by styles, or methods, of investing as detailed below.
Long/Short Equity Funds of Hedge Funds
There are many different kinds of hedge funds. Those in which MMBB invests are predominantly long/short equity hedge funds. This means that a portfolio manager can follow two different investment strategies. The manager can make a traditional investment by buying stocks in the hope that they will rise in value. But, the manager can also sell stocks in the hope that they will fall in value. The manager builds value in this “short sale” by buying the stocks back at a lower price. By combining these two strategies, a fund manager can make money when the market declines as well as when the market rises.
To spread the risk, MMBB selects funds of hedge funds, meaning that each fund in which MMBB invests itself holds investments among numerous managers, each making independent decisions. The reason that hedge funds are included in the equity asset class is that their performance is actually less volatile than the traditional investment strategy. As a result, MMBB considers the hedge fund allocation to be a more conservative means of obtaining equity exposure. The hedge fund component tends to rise less than the other equity segment, above, during strong market environments, but, very importantly, tends to fall less during difficult periods. This can be a very important aspect in managing the overall risk and return of the Balanced Fund portfolio.
The term “emerging markets” refers to countries whose capital markets are less mature than those of countries with developed economies, such as the United States. Emerging markets have a number of characteristics that make them attractive places to seek profitable investments. These include, but are not limited to:
All of the above may create the potential for higher investment returns than available in developed nations.
With higher return potential comes higher risk. Risks in emerging markets include higher volatility of share prices, and lower liquidity (ability to easily and quickly dispose of an investment once it is no longer attractive to hold). See more “here”:/funds-how-we-invest/funds/stock-funds/international-blended-equity-fund/risks-of-emerging-markets/.
In investing in emerging markets MMBB applies a similar approach to that used in developed markets: splitting its assets among several managers who diversify their stock selections using different approaches, including, but not limited to:
International Developed Markets
Balanced Fund holdings in international equities range from developed to emerging markets, this asset class attempts to outperform its benchmark, the EAFE Index. The EAFE Index is broadly representative of the stock markets of Europe, Australia and the Far East.
Assets are allocated among several managers who diversify their stock selections using different approaches, including, but not limited to:
U.S. equity is one of the basic building blocks of a diversified portfolio, offering access to a full range of industries that power long-term growth. MMBB employs several styles of investment management in order to capture varying returns throughout the economic cycle:
To generate additional income there is a call-writing strategy that is overlaid on the US equity asset class. Though there will be times when it enhances return of the asset class and times when it detracts, the call-writing strategy is expected, over time, to incrementally add to total return and slightly dampen volatility.
Bond investments in the Balanced Fund portfolio incorporate several approaches, each of which has a specific role in creating a well-structured fixed income asset class. There are three factors of importance:
Short Duration Bonds
This portion of the fixed income asset class may be invested in bonds issued by governments, agencies, mortgages, and corporations. Because of the short duration, these bonds would be expected to suffer less than long-term bonds when interest rates rise.
Core Fixed Income
Core fixed income is benchmarked to the Barclays Capital (BC) Aggregate Bond Index, which is broadly representative of the U.S. bond market. The BC Aggregate Bond Index includes government bonds, agency bonds, mortgages and corporate bonds considered to be investment grade.
MMBB uses two styles to execute this segment of the fixed income asset class: passive and active. The passive manager attempts to replicate the entire bond market represented by the index without an attempt to outperform it. Active managers, in contrast, are very selective in which bonds they hold in their respective portfolios. Active managers take into consideration such things as the probability that interest rates may rise or fall, the credit quality of the companies or entities that have issued the bonds, and the relative values offered by different sectors of the market (for example, whether government bonds are a better buy than corporate bonds). The active portion of the asset class is expected, over time, to produce a higher return than the passive component. One or more of the active managers may be allowed to short a portion of the portfolio in an attempt to add value.
This portion of the portfolio allows MMBB to take advantage of potentially favorable opportunities across asset classes and across strategies as they arise. For example, if the external manager believes that emerging markets equities offer unusual potential, he can invest in them. Later, if the manager believes that short-term bonds have the most potential for growth, he can reallocate this portion of the portfolio to short-term bonds. In other words, the manager is opportunistic, choosing among a broad range of asset classes rather than adhering to a pre-determined allocation. This may raise the fund’s overall exposure to an asset class.
Investments available to the tactical asset allocation manager include:
The diversification of this portion of the portfolio can vary over time. At one point it may be very diversified across a variety of asset classes; at another point in time it could be rather concentrated in just a few favored areas. Over time this pool of assets has tended to have about 20% allocated to a multi-strategy hedge fund in order to anchor performance with a relatively stable segment.
By being able to purchase assets with the best prospects, the probability for favorable performance is enhanced.
As its name implies, the Balanced Fund is largely “balanced,” or allocated, between the two major types of investments: equities (stocks) and bonds (fixed income).
The majority of this fund is invested in equities (stocks of companies) of a wide variety of corporations around the globe. Historically, over long periods of time, equities have tended to provide higher returns than other investments, such as bonds or money market funds. While there is no guarantee that this will be the case in the future, investment theory suggests that exposure to equities for a portion of a diversified investment portfolio is a key reason investors would select an option like this one.
Because bonds (fixed income) usually have return patterns that are different than stocks, and very often move in the opposite direction than stocks, the bond component of the Balanced Fund tends to have a stabilizing affect on the entire portfolio. This can be particularly valuable when equities are in decline.
The Balanced Fund combines passive investment strategies designed to simply mirror the stock and bond markets’ characteristics and performance with an active investment strategies aiming to produce better than market returns. This gives investors as broad an exposure as possible to the styles that exist in MMBB’s other options. As one style outperforms the others, the Balanced Fund investor will receive at least part of that benefit. The majority of the fund is allocated to equities, both U.S. and international.
The Balanced Fund also invests in hedge funds. Hedge funds, over time, tend to produce returns that are higher than bonds and less volatile than stocks. Because hedge funds do not tend to move in lock-step with either stocks or bonds they act to further diversify the portfolio as a whole.
The Balanced Fund also includes a Tactical Asset Allocation segment. Assets in this segment may be deployed by the manager to whichever investments he deems most attractive. If his assessment is correct, then this portion of the fund will likely earn more favorable returns over time than if they were locked into a static allocation.
All investments risk the loss of capital. Although the combination of stocks, bonds and hedge funds in the Balanced Fund creates a very well diversified fund that should cushion shocks in any one of those areas, the return of this fund could still be negative.
Like MMBB’s equity-only investment options, the portion of the Balanced Fund that is allocated to stocks (equities) can decline in value. Among the reasons stocks can lose value include declines in the overall stock markets and reasons related to the profitability, or perceived profitability, of specific companies in which the fund invests.
There is a call-writing strategy that is overlaid on the US equity asset class. The portfolio earns income by selling options to purchase equity exposure from the portfolio at a pre-determined price, which is higher than the price at the time the option is sold. Should the equity market price exceed the price of the option before expiration, the portfolio has to pay the difference and thus produces a lower rate of return. This risk is usually realized during periods of sharply rising stock markets and/or low volatility.
That portion of the Balanced Fund that is allocated to bonds (fixed income) will be subject to risks of the bond market. Most commonly these include losses from rising interest rates and the risk that issuers of bonds may not be able to meet their interest and principal payments.
This fund allocates a portion of its assets to a tactical asset allocation strategy. This strategy is designated to have the flexibility to shift among equities, bonds or other asset classes. In the aggregate, then, this portion of the overall portfolio can increase the fund’s exposure to equities and bonds beyond that indicated in the strategic allocation.
Part of the way that this fund invests in equities is via hedge funds. Hedge funds are generally less regulated than other types of investment vehicles. They may leverage investment positions to magnify investment returns, both positive and negative. Although MMBB engages managers believed capable and responsible, it is still possible for hedge funds to lose value and harm that portion of the portfolio.
The success of all actively managed portions of the fund is highly dependent upon the skill of the manager appointed to them.
Due to the latitude extended to active managers, their portfolios may hold some securities (e.g., debt of emerging markets) that MMBB might not include as stand-alone policy allocations. As a result, more risky investments can be part of the fund’s portfolio.
Values for certain investments are estimated, are not available on a daily basis and/or available only on a lagged basis. This has two implications for a person who is buying or selling units of the Balanced Fund units on any given day. If the non-daily valued investments have declined in value since they were last valued, a person purchasing units of the Balanced Fund could be purchasing them at a slightly higher price than if the actual value were known at the end of each business day. Conversely, if the non-daily valued investments have increased, a seller may redeem units of the Balanced Fund at a lower price—and thus realize less profit—than if the actual value were known at the end of each business day.
*If you are uncomfortable with the risks associated with the Balanced Fund, you may want to consider another MMBB investment option.*
The performance of the Balanced Fund for varying lengths of time is summarized below. The longer the time period, the more likely it encompasses varying economic and market conditions.
|Balanced Fund Multi-Asset Class Benchmark||0.24%||0.06%||8.60%||6.38%||6.82%||7.51%||4.81%|
While it is valuable to view investment performance over long-term time horizons, looking at shorter time periods can give one insight as to how returns may fluctuate over shorter time periods. The table below displays calendar year returns.
Past performance is no guarantee of future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance is for the stated time period only; performance through the current date may be lower or higher than displayed above due to market fluctuations, manager performance or other reasons.
From time to time MMBB contracts with one or more external managers to execute the investment strategy for the Balanced Fund. Recently the roster for this investment option included:
American Century Investment Management
Dimensional Fund Advisors
Dodge & Cox
Federal Street Partners
Fisher, Francis, Trees and Watts
Mellon Capital Management
Mondrian Investment Group
Parametric Portfolio Associates
RBC Global Asset Management
Trust Company of the West
UBS Global Asset Management
Western Asset Management
|Investment Management Fees||0.58%|
|MMBB Administrative Charge||0.50%|
|Sales Charge (Load) on Purchases||None|
|Deferred Sales Charge (Load)||None|
|Short-term or Other Redemption Fee||None|
|Distribution, or 12b-1, Fee||None|
|Dealer Commission (percent of offering price)||None|
|Low Balance Account Service Fee||None|
|Total Annual Operating Expenses||1.19%|