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Mutual funds with a strong performance record and low expenses have always been preferred investment options. In the current scenario, when U.S. based stock mutual funds are witnessing massive withdrawals, low cost funds are poised to attract significant investor attention.
Moreover, an improving economic scenario and positive movements in financial markets are expected to boost demand for low cost mutual funds. Keeping this in mind, we have identified some favorably ranked low cost mutual funds that also gained significantly in both the short as well as the long term.
Low Expense Ratio
Well-performing mutual funds with a low expense ratio and no sales load have always been on investor radar. Expense ratio refers to the percentage of total assets required to operate a fund. Operating expenses decrease the total value of a mutual fund's assets, which lowers the return to fund investors. Thus a fund with a lower expense ratio is better for investors instead of those with a higher ratio. A lower expense ratio means more efficient use of the fund’s assets in earning investors’ return, lower operating costs and a higher return for investors.
A recent study carried out by Morningstar showed that mutual funds with a low expense ratio may outperform others with higher ratios. In the study, mutual funds have been segmented according to different quintiles of expense ratio among their respective categories. The study was conducted to examine the "success ratio" of funds in a five-year time span ended Dec 2015.
Success ratio is the proportion of funds that performed better than their respective categories on the basis of total returns. The study showed that U.S. stock funds categorized in the lowest expense ratio quintile came up with a success ratio of 62%, significantly higher than 20% success ratio registered by those with highest expense ratios.
No-Load Funds
No-loads are funds that come with no sales loads. There are two types of sales loads – front end sales loads and back end sales loads. Front end sales loads are fees that an investor must pay at the time of investment. Also categorized as “Sales Charge (Load) on Purchases”, these are charges an investor pays while purchasing a fund. Back end sales loads are fees that an investor must pay while selling the investments. Categorized as the “Deferred Sales Charge (Load)", these fees are deducted while redeeming fund shares.
After a dream run last year, no-load mutual funds continued to offer healthy returns in the first quarter of 2016. The lower expense advantage of no-load funds over load funds played an important role in boosting their demand. The top 100 funds out of the total no-load funds we studied registered an average return of 25.9% last quarter compared to the top 100 load funds’ average return of 16.2%. The top performing 100 no-load mutual funds posted an average return of 16.74% in 2015 compared with the top 100 load funds’ average return of 11.05%. (Read: No-Load Funds Excel in Q1: 5 Top Performers)
4 Low-Cost Funds to Buy Now
We have highlighted four no-load mutual funds with expense ratio below 0.5% that carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
Moreover, these funds have encouraging year-to-date, three-year and five-year annualized returns. The minimum initial investment is within $5000.
Fidelity Spartan 500 Index Investor invests the lion’s share of its assets in common stocks of companies listed under the S&P 500 Index. Annual expense ratio of 0.10% is significantly lower than the category average of 1.02%. Zacks Mutual Fund Rank #1 FUSEX has year-to-date, three-year and five-year annualized returns of 3.2%, 10.4% and 11.9%, respectively.
DFA US Large Cap Value III (DFUVX - Free Report) invests nearly all of its assets in its master fund, the U.S. Large Cap Value Series, which in turn allocates most of its assets in securities of domestic large-cap companies that are believed to be undervalued. Annual expense ratio of 0.13% is significantly lower than the category average of 1.10%. Zacks Mutual Fund Rank #1 DFUVX has year-to-date, three-year and five-year annualized returns of 4%, 9.1% and 11.3%, respectively.
Vanguard Dividend Growth Investor (VDIGX - Free Report) invests a major portion of its assets in securities of high-quality companies with an impressive dividend paying potential. Annual expense ratio of 0.32% is significantly lower than the category average of 1.02%. Zacks Mutual Fund Rank #2 VDIGX has year-to-date, three-year and five-year annualized returns of 3.9%, 10% and 12.1%, respectively.
American Funds Washington Mutual R6 (RWMGX - Free Report) maintains a diversified portfolio by investing in securities of companies having impressive record of earnings and dividend. Annual expense ratio of 0.30% is significantly lower than the category average of 1.10%. Zacks Mutual Fund Rank #2 RWMGX has year-to-date, three-year and five-year annualized returns of 4.1%, 9.5% and 11.7%, respectively.
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 https://www.zacks.com/funds.
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4 Low-Cost Mutual Funds to Boost Your Portfolio
Mutual funds with a strong performance record and low expenses have always been preferred investment options. In the current scenario, when U.S. based stock mutual funds are witnessing massive withdrawals, low cost funds are poised to attract significant investor attention.
Moreover, an improving economic scenario and positive movements in financial markets are expected to boost demand for low cost mutual funds. Keeping this in mind, we have identified some favorably ranked low cost mutual funds that also gained significantly in both the short as well as the long term.
Low Expense Ratio
Well-performing mutual funds with a low expense ratio and no sales load have always been on investor radar. Expense ratio refers to the percentage of total assets required to operate a fund. Operating expenses decrease the total value of a mutual fund's assets, which lowers the return to fund investors. Thus a fund with a lower expense ratio is better for investors instead of those with a higher ratio. A lower expense ratio means more efficient use of the fund’s assets in earning investors’ return, lower operating costs and a higher return for investors.
A recent study carried out by Morningstar showed that mutual funds with a low expense ratio may outperform others with higher ratios. In the study, mutual funds have been segmented according to different quintiles of expense ratio among their respective categories. The study was conducted to examine the "success ratio" of funds in a five-year time span ended Dec 2015.
Success ratio is the proportion of funds that performed better than their respective categories on the basis of total returns. The study showed that U.S. stock funds categorized in the lowest expense ratio quintile came up with a success ratio of 62%, significantly higher than 20% success ratio registered by those with highest expense ratios.
No-Load Funds
No-loads are funds that come with no sales loads. There are two types of sales loads – front end sales loads and back end sales loads. Front end sales loads are fees that an investor must pay at the time of investment. Also categorized as “Sales Charge (Load) on Purchases”, these are charges an investor pays while purchasing a fund. Back end sales loads are fees that an investor must pay while selling the investments. Categorized as the “Deferred Sales Charge (Load)", these fees are deducted while redeeming fund shares.
After a dream run last year, no-load mutual funds continued to offer healthy returns in the first quarter of 2016. The lower expense advantage of no-load funds over load funds played an important role in boosting their demand. The top 100 funds out of the total no-load funds we studied registered an average return of 25.9% last quarter compared to the top 100 load funds’ average return of 16.2%. The top performing 100 no-load mutual funds posted an average return of 16.74% in 2015 compared with the top 100 load funds’ average return of 11.05%. (Read: No-Load Funds Excel in Q1: 5 Top Performers)
4 Low-Cost Funds to Buy Now
We have highlighted four no-load mutual funds with expense ratio below 0.5% that carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
Moreover, these funds have encouraging year-to-date, three-year and five-year annualized returns. The minimum initial investment is within $5000.
Fidelity Spartan 500 Index Investor invests the lion’s share of its assets in common stocks of companies listed under the S&P 500 Index. Annual expense ratio of 0.10% is significantly lower than the category average of 1.02%. Zacks Mutual Fund Rank #1 FUSEX has year-to-date, three-year and five-year annualized returns of 3.2%, 10.4% and 11.9%, respectively.
DFA US Large Cap Value III (DFUVX - Free Report) invests nearly all of its assets in its master fund, the U.S. Large Cap Value Series, which in turn allocates most of its assets in securities of domestic large-cap companies that are believed to be undervalued. Annual expense ratio of 0.13% is significantly lower than the category average of 1.10%. Zacks Mutual Fund Rank #1 DFUVX has year-to-date, three-year and five-year annualized returns of 4%, 9.1% and 11.3%, respectively.
Vanguard Dividend Growth Investor (VDIGX - Free Report) invests a major portion of its assets in securities of high-quality companies with an impressive dividend paying potential. Annual expense ratio of 0.32% is significantly lower than the category average of 1.02%. Zacks Mutual Fund Rank #2 VDIGX has year-to-date, three-year and five-year annualized returns of 3.9%, 10% and 12.1%, respectively.
American Funds Washington Mutual R6 (RWMGX - Free Report) maintains a diversified portfolio by investing in securities of companies having impressive record of earnings and dividend. Annual expense ratio of 0.30% is significantly lower than the category average of 1.10%. Zacks Mutual Fund Rank #2 RWMGX has year-to-date, three-year and five-year annualized returns of 4.1%, 9.5% and 11.7%, respectively.
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 https://www.zacks.com/funds.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>