Is American Funds Balanced A (ABALX) A Strong Mutual Fund Pick Right Now?

Allocation Balanced fund seekers should not consider taking a look at American Funds Balanced A (ABALX) at this time. ABALX carries a Zacks Mutual Fund Rank of 4 (Sell), which is based on nine forecasting factors like size, cost, and past performance.

Objective

The world of Zacks' Allocation Balanced funds is an area filled with options, such as ABALX. These funds like to invest in a variety of asset types, finding a balance between stocks, bonds, cash, and sometimes even precious metals and commodities; they are mostly categorized by their respective asset allocation. For investors, Allocation Balanced funds can provide an entry point into diversified mutual funds, and present core holding options for a portfolio of funds.

History of Fund/Manager

ABALX is a part of the American Funds family of funds, a company based out of Los Angeles, CA. Since American Funds Balanced A made its debut in September of 1932, ABALX has garnered more than $70.89 billion in assets. The fund is currently managed by a team of investment professionals.

Performance

Investors naturally seek funds with strong performance. This fund in particular has delivered a 5-year annualized total return of 7.09%, and it sits in the top third among its category peers. But if you are looking for a shorter time frame, it is also worth looking at its 3-year annualized total return of 8.34%, which places it in the top third during this time-frame.

When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. Compared to the category average of 9.49%, the standard deviation of ABALX over the past three years is 7%. The standard deviation of the fund over the past 5 years is 7.24% compared to the category average of 9.65%. This makes the fund less volatile than its peers over the past half-decade.

Risk Factors

Investors should always remember the downsides to a potential investment, and this segment carries some risks one should be aware of. In the most recent bear market, ABALX lost 36.97% and underperformed its peer group by 1%. This means that the fund could possibly be a worse choice than its peers during a down market environment.

Investors should not forget about beta, an important way to measure a mutual fund's risk compared to the market as a whole. ABALX has a 5-year beta of 0.59, which means it is likely to be less volatile than the market average. Alpha is an additional metric to take into consideration, since it represents a portfolio's performance on a risk-adjusted basis relative to a benchmark, which in this case, is the S&P 500. Over the past 5 years, the fund has a positive alpha of 0.65. This means that managers in this portfolio are skilled in picking securities that generate better-than-benchmark returns.

Expenses

Costs are increasingly important for mutual fund investing, and particularly as competition heats up in this market. And all things being equal, a lower cost product will outperform its otherwise identical counterpart, so taking a closer look at these metrics is key for investors. In terms of fees, ABALX is a load fund. It has an expense ratio of 0.57% compared to the category average of 0.92%. Looking at the fund from a cost perspective, ABALX is actually cheaper than its peers.

While the minimum initial investment for the product is $250, investors should also note that each subsequent investment needs to be at least $50.

Bottom Line

Overall, American Funds Balanced A ( ABALX ) has a low Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, this fund looks like a somewhat weak choice for investors right now.

Your research on the Allocation Balanced segment doesn't have to stop here. You can check out all the great mutual fund tools we have to offer by going to www.zacks.com/funds/mutual-funds to see the additional features we offer as well for additional information. Want to learn even more? We have a full suite of tools on stocks that you can use to find the best choices for your portfolio too, no matter what kind of investor you are.