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Balanced Fund Managers Discuss Portfolio Income

Ned Notzon and Charles Shriver are portfolio managers in T. Rowe Price’s U.S. Asset Allocation Group. I spoke with them in late July about their balanced stock/bond funds and what investors need to know when analyzing income investments.

—Charles Rotblut, CFA

Charles Rotblut (CR): You are allowed a certain amount of leeway on how much you allocate to stocks and how much you allocate to bonds. What factors cause you to favor one asset class over the other?

Ned Notzon and Charles Shriver (NN and CS): We believe most people would like to have a mix between stocks and bonds. The mix is based on factors such as their age, their tolerance for risk, and their confidence in the economy and in the financial markets. We develop neutral weights for the market sectors and overweight or underweight these sectors based primarily on valuations. Ideally, we would overweight sectors that have done poorly, where the factors responsible for that poor performance are gone and the market has not responded. Often the market takes six to 18 months (or even longer) to respond.

CR: In terms of income, with the Federal Reserve’s quantitative easing programs coming to an end, have you shifted more toward

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