Finance

Investing in "Hybrid" Funds

Stocks or bonds? How about something in between?
Magazine Contributor
2 min read

This story appears in the August 2006 issue of . Subscribe »

If variety is the spice of life, diversification is the spice of the mutual fund arena. If it's spice you want, you may consider a convertible securities fund.

"Convertible securities are hybrids-they have some characteristics of bonds and some of common stocks," says Joseph Brennan, a principal in Vanguard's Portfolio Review Group who leads a team of analysts that oversees more than 130 mutual funds, including the popular Vanguard Convertible Securities Fund(VCVSX). Like bonds, convertibles typically pay a fixed rate of interest and repay principal on a given date in the future. And, Brennan says, "they typically pay an income yield higher than the dividend yield of the issuer's common stock but lower than the yield of the issuer's bonds." You'll find between 75 and 100 securities in the broadly diversified Vanguard Convertible Securities Fund, the majority of them convertible bonds.

Companies bringing convertibles to market are usually mid- and small-cap companies that may have low to medium credit ratings. But convertibles have their benefits: They are good diversifiers, and they play a balanced and defensive role in a portfolio.

Bottom line: Convertible funds are income producers that Brennan says are "unlikely to outperform in a bullish stock market or fall far behind in a bearish one."

Dian Vujovich is an author, syndicated columnist and publisher of fund investing site www.fundfreebies.com.

More from Entrepreneur

Are paying too much for business insurance? Do you have critical gaps in your coverage? Trust Entrepreneur to help you find out.
Get Your Quote Now

One-on-one online sessions with our experts can help you start a business, grow your business, build your brand, fundraise and more.
Book Your Session

Whether you are launching or growing a business, we have all the business tools you need to take your business to the next level, in one place.
Enroll Now

Latest on Entrepreneur

My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.

4 Pieces of Financial Advice Every Budding Entrepreneur Needs to Hear