Hybrid Fund: Meaning and Examples of Mixed-Asset Funds
What is a hybrid fund?
A hybrid fund (also called an asset allocation fund) is an investment fund that holds two or more asset classes within a single portfolio. Most commonly, hybrid funds combine stocks and bonds to provide built-in diversification and a single point of access to multiple market exposures.
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Key features
- Diversification across asset classes in one vehicle.
- Varying risk profiles: conservative, moderate, or aggressive depending on allocations.
- May be actively or passively managed within each asset class.
- Can maintain fixed allocation or change allocation over time.
Common types
- Balanced funds: Maintain a relatively fixed mix of stocks and bonds (a common example is a 60% stock / 40% bond split).
- Target-date (lifecycle) funds: Begin with a more aggressive allocation and gradually shift toward a more conservative mix as the target date (e.g., retirement year) approaches.
- Blend (blended) equity funds: Combine different equity styles—typically growth and value—within an equity allocation rather than mixing asset classes.
How they work
Hybrid funds allocate capital among multiple asset classes to pursue a desired risk/return profile. In fixed-allocation funds, the manager rebalances to maintain target percentages. In target-date funds, the allocation gradually shifts over time to reduce risk as the target date nears. Within each asset class, managers may actively select holdings or track an index.
Examples
- Vanguard Balanced Index Fund (VBIAX) — A 60/40-style balanced fund that tracks broad U.S. equity and aggregate bond indexes; low expense ratio.
- T. Rowe Price Retirement 2060 Fund (TRRLX) — A target-date, fund-of-funds designed for investors retiring around 2060; allocation is equity-heavy early on and becomes more conservative over time.
Advantages
- Simple diversification in a single investment.
- Professional allocation and rebalancing.
- Suited to investors who want one-stop exposure to a mix of asset classes.
- Can match broad objectives (e.g., income, growth, or retirement timing).
Disadvantages
- Less control over individual allocations compared with building your own portfolio.
- Fees can vary—funds that use multiple underlying funds or active management often have higher expense ratios.
- Target-date funds assume a one-size-fits-most glidepath that may not suit every investor’s circumstances.
How to choose a hybrid fund
- Determine your risk tolerance and investment horizon.
- Compare target allocations and glidepaths (for target-date funds).
- Review management style (active vs. passive) and underlying holdings.
- Check expense ratios and any additional fund-of-funds layers.
- Ensure the fund’s objective aligns with your goals (income, growth, retirement).
Bottom line
Hybrid funds simplify diversified investing by packaging multiple asset classes into one fund. They are useful for investors seeking a single, managed allocation strategy—whether a steady balanced approach or a time-based glidepath—while trade-offs include reduced customization and potentially higher fees.