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THE PERFORMANCE CHARACTERISTICS OF HYBRID
MUTUAL FUNDS

Zakri Bello

ABSTRACT

This study investigates the sample characteristics and investment performance of three categories of hybrid mutual funds and the extent to which hybrid funds are a hedge against inflation. The aggressive allocation category held the largest positions in stocks, was smaller in size, and, on average, the least diversified. The conservative allocation category held the smallest positions in stocks but was the most diversified. On average, hybrid mutual funds had diversification advantages over an unmanaged portfolio of stocks; however, the funds under- performed the stock market from April 1993 to March 2013 and they had significant tracking errors. The aggressive allocation category had the worst investment performance. Finally, the average hybrid mutual fund was a poor hedge against inflation. The aggressive allocation category was the best inflation hedge  and the conservative category was the worst.

Key words: hybrid mutual funds, performance evaluation, inflation hedge, portfolio allocation.

JEL Codes: G11, G12, G20, G23.