Hybrid Fund
A hybrid fund is an investment fund that is characterized by diversification among two or more asset classes. Target date funds vary from standard hybrid funds in that their portfolio portions begin with a more aggressive allocation and progressively rebalance to a more conservative allocation for use by a specified utilization date. The fund uses a fund of funds approach with 19% of the portfolio in a growth stock fund. A hybrid fund is a classification of a mutual fund or ETF that invests in different types of assets or asset classes to produce a diversified portfolio. A **blend fund** (or blended fund) is a type of equity mutual fund that includes a mix of both value and growth stocks.
What Is a Hybrid Fund?
A hybrid fund is an investment fund that is characterized by diversification among two or more asset classes. These funds typically invest in a mix of stocks and bonds. They may also be known as asset allocation funds.
Understanding Hybrid Funds
Hybrid funds offer investors a diversified portfolio. The term hybrid indicates that the fund strategy includes investment in multiple asset classes. In general, it can also mean that the fund uses an alternative mixed management approach.
Hybrid funds are commonly known as asset allocation funds. In the investment market, asset allocation funds can be used for many purposes. These funds offer investors an option for investing in multiple asset classes through a single fund.
Hybrid funds evolved from the implementation of modern portfolio theory in fund management. These funds can offer varying levels of risk tolerance ranging from conservative to moderate and aggressive.
In all cases, hybrid funds will include some mix of two or more asset classes. In risk-targeted and balanced funds, allocations will typically remain at a fixed proportion. In funds targeting a specified utilization date, the proportion of asset mix will vary over time. In all of the funds, the investment manager may actively manage the individual holdings within each asset category to respond to changing market conditions and potential capital appreciation opportunities
Examples of Hybrid Funds
Investment managers offer a wide range of options for hybrid funds. Below are two examples.
Vanguard Balanced Index Fund (VBIAX)
This fund has a 60/40 balance among stocks and bonds. The stock portion of the portfolio seeks to replicate the CRSP U.S. Total Market Index. The bond portion of the portfolio seeks to replicate the Bloomberg Barclays U.S. Aggregate Float Adjusted Index. The fund has an expense ratio of 0.06% as of Q2 2021.
T. Rowe Price Retirement 2060 Fund (TRRLX)
The T. Rowe Price Retirement 2060 Fund is a hybrid target-date fund. As of May 2021, it had more than 90% of the portfolio in stocks and approximately 8% in bonds and other fixed-income securities. The fund uses a fund of funds approach with 19% of the portfolio in a growth stock fund. The fund has an expense ratio of 0.71% as of Q2 2021.
Related terms:
Asset Allocation Fund
An asset allocation fund is a fund that provides investors with a diversified portfolio of investments across various asset classes. read more
Asset Mix
The asset mix is the breakdown of all assets within a fund or portfolio, helping investors understand the composition of a portfolio. read more
Asset Allocation
Asset allocation is the process of deciding where to put money to work in the market. read more
Balanced Fund
Balanced funds are hybrid mutual funds that invest money across asset classes with a mix of low- to medium-risk stocks, bonds, and other securities. read more
Blend Fund
A blend fund is a type of equity mutual fund that includes a mix of value and growth stocks. read more
Bond : Understanding What a Bond Is
A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. read more
Diversified Fund
A diversified fund is a fund that is broadly diversified across multiple market sectors or geographic regions. read more
What Is a Fund Category?
A fund category is a way of differentiating mutual funds according to their investment objectives and principal investment features. read more
Growth Stock
A growth stock is a publicly traded share in a company expected to grow at a rate higher than the market average. read more