What Is a Hybrid Fund?
Let me explain what a hybrid fund is. It's an investment fund that stands out because it diversifies across two or more asset classes. These funds usually put money into a combination of stocks and bonds. You might also hear them called asset allocation funds.
Key Takeaways
Here's what you need to know right away. A hybrid fund classifies as a mutual fund or ETF that invests in various assets or classes to build a diversified portfolio. For instance, balanced funds often hold about 60% in stocks and 40% in bonds, making them a prime example. Another type is blended funds, which combine growth and value stocks.
Understanding Hybrid Funds
I want you to understand how hybrid funds work. They give you a diversified portfolio. The 'hybrid' term means the strategy involves multiple asset classes. Sometimes, it also refers to a mixed management approach that's alternative in nature.
These are commonly referred to as asset allocation funds. In the investment world, they serve many purposes. They let you invest in several asset classes via one single fund.
Hybrid funds came about from applying modern portfolio theory to fund management. They can match different risk tolerances, from conservative to moderate or even aggressive.
Balanced funds count as hybrid funds too. They often stick to a standard split, like 60% stocks and 40% bonds. Target date or lifecycle funds are also hybrids. They diversify across asset classes, but unlike standard hybrids, they start aggressive and shift to conservative over time toward a set date.
A blend fund is an equity mutual fund that mixes value and growth stocks. It offers diversification in these styles within one portfolio.
In every case, hybrid funds mix at least two asset classes. For risk-targeted or balanced ones, the allocations stay fixed. For those with a target date, the mix changes over time. In all of them, the manager actively handles holdings in each category to adapt to market shifts and seek capital growth.
Examples of Hybrid Funds
Investment managers provide plenty of hybrid fund options. I'll share two examples with you.
Vanguard Balanced Index Fund (VBIAX)
This one maintains a 60/40 split between stocks and bonds. The stock part tracks the CRSP U.S. Total Market Index. The bond part follows the Bloomberg U.S. Aggregate Float Adjusted Index. As of Q2 2021, its expense ratio is 0.06%.
T. Rowe Price Retirement 2060 Fund (TRRLX)
This is a hybrid target-date fund. As of May 2021, it had over 90% in stocks and about 8% in bonds and fixed-income. It uses a fund-of-funds method, with 19% in a growth stock fund. The expense ratio is 0.71% as of Q2 2021.
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