When it comes to choosing investments, investors typically buy a handful of stocks or equity mutual funds and then a few bonds or bond funds to fill out the rest of their portfolio. Unfortunately, thinking about asset allocation in a strict stock vs. bond mind-set means that folks may miss out on some truly top-rate investments that seek to combine the best securities from both sides of the aisle. So in the spirit of bipartisanship, let's take a quick look at some of the best hybrid, or balanced, mutual funds in the business today.

FPA Crescent
Manager Steve Romick of FPA Crescent (FPACX) doesn't like what he sees in the equity markets right now, and isn't afraid to put his money where his mouth is. According to Morningstar data, the fund holds roughly 44% of assets in cash right now, based on Romick's belief that investors have become complacent and are shrugging off structural weaknesses in the economy. Throughout the fund's history, equity holdings have tended to hover around the 40%-50% range, with the remainder invested in cash and fixed income. Romick has a wide mandate, here, and is able to invest wherever he sees value in individual stocks or bonds.

Unlike most balanced funds, FPA Crescent invests in mid- and small-cap stocks, to the tune of roughly half of equity assets. The fund recently added to its positions in mid-sized oil drilling company Ensco (NYSE: ESV) and insurance firm Aon (NYSE: AON). Both stocks trade at multiples cheaper than their peers and the broader market, making them attractive marks for Romick, who isn't generally enamored with current valuation levels in the market. 

Thanks to Romick's consistently cautious approach, the fund currently sits atop its category, outranking 99% of all Morningstar Moderate Target Risk funds over the past 15 years with an impressive 10.6% annualized return. This fund shines in difficult market environments, so if you're looking for an all-weather vehicle to protect your capital on the downside, FPA Crescent is one of the best in the bunch.

T. Rowe Price Capital Appreciation
T. Rowe Price Capital Appreciation (PRWCX) has been skippered by manager David Giroux for only about four years now, but in that time, Giroux has proved his mettle. This fund is a bit more eclectic than most balanced funds in that it has owned high-yield bonds, convertibles, leveraged loans, and also has the ability to write call options on its equity portfolio. Right now, Giroux has a hefty stake in financials, including Bank of America (NYSE: BAC) and JPMorgan Chase (NYSE: JPM). I'm still skeptical on these two names since both face substantial hurdles, including funding and balance sheet issues. But the worst is likely over for the big-name banks, and those that can emerge from the crisis in a stronger competitive position are likely to have further upside potential.

Currently, the fund dedicates roughly 64% of its assets to stocks, with the remainder in cash and corporate and convertible bonds. In the past three years, Capital Appreciation has steamed ahead of 87% of its competition. Thanks to its greater weighting in equities and Giroux's willingness to invest in more obscure corners of the market, volatility here will be higher than in most balanced funds. For example, the fund lost a meaningful 27% in 2008's bear market, but rebounded by 33% the following year. Investors who are willing to ride out the bumps should do quite nicely here, if recent results are any indication.

Vanguard Wellington
The last stop on our tour is Vanguard Wellington (VWELX), which is sub-advised by a management team from top-rated Wellington Management. The fund has a top-tier long-term track record and holds the honor of being one of the oldest mutual funds in existence with an inception date of 1929. The current managers haven't been on the job quite that long, but over the past 10 years, Wellington has left 97% of its competitors in its dust. The fund's mandate calls for it to invest 60% to 70% of assets in typically large-cap dividend-producing stocks with the remainder in more traditional bond securities: investment grade corporate bonds, Treasuries, and agency securities.

Top holdings in the portfolio include a hefty dose of health-care stocks such as Merck (NYSE: MRK), Pfizer (NYSE: PFE), and Eli Lilly (NYSE: LLY). I like the focus on health-care stocks and think this area should do nicely in 2010. And given that Merck and Lilly trade at P/Es of less than 10 and all three boast dividend yields in excess of 4%, each represents a compelling investment opportunity in an otherwise fully valued market. Low turnover and a rock-bottom 0.34% price tag further add to Vanguard Wellington's many charms. This fund would be a welcome core holding in almost any investor's portfolio.

Thanks to fear and uncertainty over the financial health of the euro zone, markets are likely to remain volatile in the near future. If you're looking for an investment that can help protect you on the downside while still allowing opportunities for meaningful capital growth on the upside, consider adding a balanced fund to your portfolio line-up. These funds could be just the ticket to riding out the ongoing economic storm.