Mutual funds: mixing it up.(hybrid mutual funds)

BACK TO A BASIC

The mutual fund's allure, when it sprang to life in 1924, was one-stop shopping--a diversified portfolio of stocks and bonds that would cover an investor's every need.

In recent years, however, funds have multiplied faster than guppies into specialized categories: large cap, small cap, value, growth, biotech, natural resources, short-term bond, international bond--the list seems endless. No longer does a fund serve as a person's entire portfolio but instead plays a small role within it, almost like an individual security.

Fortunately for consumers who seek a basic starter investment or a solid, plain-vanilla holding, there still is such a thing as a good, old, all-purpose fund only now it's called a hybrid, or balanced fund.

"Balanced funds don't get much attention with all the sector and specialty funds going for big gains," says Ron Roge, a Bohemia, N.Y., financial planner who specializes in mutual funds. "But they've done very nicely."

The ballast of fixed-income securities provides investors with steady returns, particularly when the stock market goes kerflooey. In both 2000 and 2001, two of the kerflooiest years in memory, hybrids handily beat the Standard & Poor's 500 Index. And, while hybrids were not the toast of the town during the 1990s market boom, the category has returned 8.7 percent a year to investors for the past 10 years, including 2001.

What it is. The typical hybrid, or balanced, fund will stick close to a classic allocation of 60 percent stocks and 40 percent bonds and cash. There are, however, two somewhat more aggressive variations: the asset-allocation fund, which has managers dipping into and out of the securities market, trying to time the profitability of stocks and bonds, and the growth-and-income fund, which mostly avoids cash and stays fully invested.