SAN FRANCISCO (MarketWatch) — Mutual funds billed as one-stop shops for yield-hungry investors searching stock and bond markets for income are on the rise. Called “funds of funds,” they don’t hold individual securities but instead own several other strategically selected funds.
These income-focused funds of funds invest in diverse sectors such as high-yield bonds, U.S. government-backed mortgage securities, U.S. Treasury bonds, real estate investment trusts, dividend-rich U.S. large-cap stocks and even emerging-markets bonds. Some also make “tactical” changes to their holdings, varying the percentage of the fund’s assets to specific investments as the fund managers see fit.
The income-building funds can seem a solid choice, especially for retirees and conservative investors who want most of their money in bonds, with a bit of stocks’ growth potential as a sweetener. Many fund companies promote their income funds of funds as a straightforward solution for both retirees and baby boomers facing retirement.
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