Balanced funds provide investors with the convenience of buying into a single fund rather holding both equity and bond funds. This category of funds also reduces a portfolio’s volatility while providing higher returns than pure fixed income investments. Such funds also enjoy the flexibility of varying the proportion of equity and fixed income investments in response to market conditions. An upswing may prompt them to hold a relatively higher share of equity in order to maximize gains; whereas a downturn may cause them to turn to fixed income investments to stem losses.

Below we will share with you the 5 highest yielding Zacks #1 ranked balanced mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all balanced funds, investors can click here to see the complete list of funds.

Natixis Income Diversified A ( IIDPX - MF report ) seeks current income with capital growth as a secondary objective. The fund primarily invests in equity and fixed-income securities which generate income. It aims to holds a diversified portfolio of varied income generating securities. The balanced mutual fund has a three year annualized return of 22.32%.

The balanced mutual fund has a minimum initial investment of $2,500 and an expense ratio of 1.19% compared to a category average of 0.88%.

Managers AMG Chicago Equity Partners Balanced ( MBEAX - MF report ) invests around 50-65% of its total assets in equity securities. The balance is utilized to purchase fixed-income securities such as bonds or invested in cash or cash equivalents. The balanced mutual fund has a three year annualized return of 14.97%.

The Fund Manager is David C. Coughenour and he has managed this balanced mutual fund since 2000.

Buffalo Flexible Income ( BUFBX - MF report ) seeks capital growth over the long term with a secondary objective of current income. The fund invests in a mix of domestic common and preferred stocks, convertible securities, and debt. The fund’s debt investments may be rated as well as unrated. The balanced mutual fund has a three year annualized return of 18.33%.

As of September 2011, this balanced mutual fund held 90 issues, with 6.62% of its total assets invested in Fidelity Instl MM Fds Government I.

Oppenheimer Global Allocation A ( QVGIX - MF report ) invests in equity and debt securities as well as other types of instruments, both domestic and foreign. The fund purchases stocks without limiting itself to a specific geographic zone. It invests in debt securities with different maturity periods. The balanced mutual fund has a three year annualized return of 14.64%.

The balanced mutual fund has a minimum initial investment of $1,000 and an expense ratio of 1.35% compared to a category average of 1.22%.

Mairs & Power Balanced ( MAPOX - MF report ) seeks current income. The fund focuses on acquiring common stock, related convertible securities as well as fixed-income securities. The fixed-income securities selected are usually rated relatively higher. The balanced mutual fund has a three year annualized return of 12.89%.

The Fund Manager is William B. Frels and he has managed this balanced mutual fund since 1992.

To view the Zacks Rank and past performance of all balanced mutual funds, investors can click here to see the complete list of funds.

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at http://www.zacks.com/funds.