Volatility returned to markets in 2025, spurred on by US trade policy uncertainty. The Morningstar US Market Index, a broad gauge of the US stock market, gained just 0.9% for the year to date through May, with a maximum drawdown of 8.1%. Investors look to balanced funds, which are typically invested in 60% stocks and 40% bonds, to help smooth returns during periods of volatility when the bond allocation acts as a ballast to equities. But some US-focused balanced funds have been more challenged than others to provide downside resilience in recent volatile markets. Let’s explore why three of those funds have struggled.
Lead manager Christopher Lee’s market views drive Fidelity Balanced’s FBALX asset allocation, which can shift up to 10 percentage points away from the 60/40 equity/bond split. A cohort of equity sector managers, along with two fixed-income managers, joins Lee. The fund, which has a Morningstar Medalist Rating of Neutral, has benefited from strong stock selection and an overweight in equities, particularly US growth stocks.
Its long-term record relative to most moderate-allocation Morningstar Category peers is attractive, but those returns have come at the price of high volatility. Over the decade through May 2025, the fund’s 9.3% return bested 95% of the peer group, but its standard deviation, a measure of volatility, clocked in at 11.9, well above the category average of 10.7. Investors have had to endure steep drawdowns because of the fund’s aggressive posture, such as during late 2018’s market volatility, 2022’s stock and bond market declines, and again in 2025 through May. For the year to date, the fund’s 1.1% gain was worse than 70% of peers, and its maximum drawdown of 4.8% during the period was worse than the peer average drop of 4.0%.
Another fund that has foundered so far in 2025 is Neutral-rated Fidelity Puritan FPURX. The fund’s straightforward process delivers a diversified balanced fund with modest deviations from its 60% S&P 500/40% Bloomberg US Aggregate Bond Index benchmark. Since lead manager Dan Kelley’s first full month on the fund in July 2018 through May 2025, its 9.7% return topped a whopping 94% of moderate-allocation category peers. The fund was aided by a slightly higher equity allocation and more exposure to growth stocks relative to the typical peer. Stocks, especially growth stocks, were strong performers over the period.
However, those tailwinds quickly became headwinds in 2025 when equities sold off. The fund’s 0.6% decline for the year to date was lower than 92% of the peer group, and its maximum drawdown of 7.2% was over 3 percentage points more than the category average. So, despite attractive long-term results, the fund’s more aggressive posture can lead to bouts of volatility that can be hard for investors to stomach.
Neutral-rated Janus Henderson Balanced JABAX is the most flexible of the three funds. The strategic equity weight is 60%, but management can shift it up by 10 percentage points or down by 20 percentage points, though the allocation has rarely gone below 50%. Combined with a focus on security selection in the stock and bond sleeves, the approach has been implemented well since lead manager Jeremiah Buckley assumed control in January 2016.
Despite a strong record under Buckley’s leadership, the fund struggled over the first four months of the year. Through April 2025, it stumbled 1.6%, worse than 58% of peers, and its maximum drawdown of 4.1% was slightly higher than that of the average rival. The reason mirrors that of the other two funds: a tilt toward large-cap growth stocks and slightly higher equity exposure than the category average. Its allocation to the technology sector was the largest overweight compared with peers; top equity holdings Microsoft MSFT and Nvidia NVDA have been mainstays in the portfolio since at least 2018.
That said, the fund turned things around through May 2025, recording a 3.1% return that put it just inside the top quartile of the category for the year.
This article first appeared in the May 2025 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.
