By creating a diversified portfolio of both stocks and bonds, balanced funds ensure that they harness the inherent strengths of both classes of instruments. Most of the competently managed funds in this category keep the proportion of assets invested in different asset classes flexible and make adjustments in keeping with prevailing market conditions. This ensures that fixed-income securities protect the portfolio from losses during a downturn while equity securities harness maximum gains from a rising market.

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.

The balanced mutual fund has an expense ratio of 1.01% compared to a category average of 0.99%.

Leuthold Asset Allocation Retail ( LAALX - MF report ) invests 30% to 70% of its assets in common stocks and other equity securities. 30% to 70% of its assets are utilized to purchase bonds and other debt instruments, except money market securities. A maximum of 20% of its assets are invested in money market securities. The balanced mutual fund has a three year annualized return of 9.72%.

The Fund Manager is Steven R. Leuthold and he has managed this balanced mutual fund since 2006.

Thornburg Investment Income Builder A ( TIBAX - MF report ) seeks current income higher than average yield of U.S. stocks. The fund invests a minimum of 80% of its assets in income generating securities. A minimum of 50% of its assets is used to purchase common stock. The balanced mutual fund has a three year annualized return of 8.53%.

As of June 2012, this balanced mutual fund held 317 issues, with 2.76% of its total assets invested in Telstra Corp Ltd.

State Farm Balanced ( STFBX - MF report ) invests 60% to 75% of its assets in common stocks. At least 25% of its assets are used to purchase fixed income securities. This includes preferred stock and debt securities with longer maturity periods; rated investment grade. The balanced mutual fund has a five year annualized return of 9.3%.

The balanced mutual fund an expense ratio of 0.13% compared to a category average of 1.00%.

Hartford Balanced Income A ( HBLAX - MF report ) seeks current income. The fund intends to invests 45% of its assets in equity and 55% in fixed income securities. The fund focuses on acquiring common stocks with a track record of regular dividends. The balanced mutual fund has a three year annualized return of 14.87%.

The Fund Manager is Lucius T. Hill, III and he has managed this balanced mutual fund since 2006.

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.