Question 1: Which balanced fund is best on a risk-adjusted basis?Īnswer: Janus Balanced is the clear winner on a 5-year risk-adjusted basis. Now back to our questions at the beginning of the article: return scatterplots, visit Balanced Funds: Risk vs. The most desirable spot is the top left corner, occupied by Janus Balanced (#5 on the chart). The chart below plots Standard Deviation vs. The analysis uses standard deviation, maximum drawdown, beta, Modigliani, and alpha over the past 1, 3, and 5 years. To see a graphical comparison of risk and risk-adjusted returns, visit Balanced Portfolios: Risk & Risk-Adjusted Returns. Over the past 5 years, Janus Balanced has shown the best risk-adjusted return, with a 12.5% Modigliani risk-adjusted measure. Over the past year, Dodge & Cox has shown a 13.4% Modigliani risk-adjusted return, which is the best in this group. So VBIAX edges out the do-it-yourself ETF combo in all three time periods, but with a slightly higher maximum drawdown. 5-year return: 7.07%, with a maximum drawdown of -27.0% over the past 5 years.Meanwhile, VBIAX has seen the following returns: 5-year return: 6.97%, with a maximum drawdown of -26.7% over the past 5 years.Turning to the topic of a do-it-yourself ETF portfolio, a balanced ETF portfolio using a combination of 60% VTI and 40% BND has seen these results: In contrast, Vanguard sticks to a firmer 60% equity guideline. For example, looking at the prospectus for Janus Balanced, we see that the fund manager can hold between 35% and 65% in equities. While "balanced fund" usually implies a fixed or stable stock-bond allocation, such as 60% stocks and 40% bonds, some of these fund managers have more discretion to change the level of stock holdings. Each manager's discretion varies between these funds. Note the varying amount of equity that each fund can hold, as shown in the descriptions above. In the table below, we see that Ibbotson has lagged the group, Dodge & Cox has performed the best over the past year, and Janus leads over the past 5 years. This static 60-40 portfolio has a 0.07% blended annual expense based on VTI expenses of 0.05% and BND expenses of 0.10%. We also created a benchmark portfolio of 60% VTI and 40% BND. Wells Fargo Advantage Index Asset Allocation ( WFAIX) 0.91%.Fidelity Global Balanced ( FGBLX) 1.04%.Here's the list with each ticker and annual expense according to the prospectus. Can I do better creating my own balanced ETF portfolio using 60% stocks ( VTI) and 40% bonds ( BND)?įirst, we identified balanced funds from the major fund companies.Which "balanced fund" has the best risk-adjusted returns?.Specifically, here are the two questions we want to answer: That also made us think about the other balanced funds from the leading fund companies. Other tools that can help you in assessing risks are Value-at-Risk and Expected Shortfall.Our recent article " 3 Portfolios Inspired By Graham, Swensen, Browne" elicited the suggestion that we compare a do-it-yourself ETF portfolio of 60% stocks and 40% bonds to Vanguard's Balanced Fund ( VBIAX). You can do it by diversifying your portfolio and choosing assets with lower risk. However, if you are retiring and plan to withdraw funds from your portfolio, you might want lower drawdown risks. The drawdown of 20%-30% may not be a problem when you are early in your career as your investment has enough time to recover. What drawdowns can tell youĭrawdown helps assess whether a particular asset is in line with your investment horizon or not and helps you prepare emotionally and financially to handle the downside risks. If the portfolio's value plunges from $10,000 to $8,000 before returning to the original value, it means it had had a 20% drawdown.ĭrawdowns are vital in calculating individual investments' historical risks, comparing various funds, or gauging one's trading performance.
It takes the form of a percentage between a peak and a trough. Drawdown is a risk measure that shows how deep an asset or portfolio has fallen from its maximum and how long it has taken to recover.
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