We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
5 Low-Risk Mutual Funds to Buy on Tariff-Induced Uncertainty
Read MoreHide Full Article
On Mar 1, President Trump said the United States will impose tariffs of 25% on steel imports and 10% on aluminum imports next week. Trump added that this move will come as the nation will focus on building and improving its steel and aluminum industry. Following this announcement, fears of possible retaliation from countries like China and Canada and the European Union (EU) heightened.
Uncertainty over Trump’s new tariffs has dampened investor sentiment to a significant extent. In this context, mutual funds that are capable of offering favorable returns and bear a lower level of risk might be prudent investment options. In order to identify low-risk mutual funds, we have used Sharpe ratio, which is used to measure a fund’s risk-adjusted returns.
Millions of Workers to be Affected, EU Retaliation Likely
Trump’s decision to raise tariffs on steel and aluminum imports will bring short-term benefits for steel-producing companies. However, it is likely to hurt those manufacturing companies which are major steel consumers. This in turn will affect around 6.5 million workers, per the American Iron & Steel Institute, involved in these kinds of steel-consuming manufacturing companies, which is significantly higher than the 140,000 workers engaged in U.S. steel producing companies.
Additionally, Jean-Claude Juncker, President of the EU Commission said that in case the U.S. increases tariffs on steel and aluminum imports, the EU will “not sit idly.” Instead, Juncker promised that “counter measures” will be taken against the United States and “the EU will react firmly and commensurately to defend” their interests. Trump, however, threatened to counter this action of the EU with a tax on cars imported from the economic bloc.
Trump’s Tariffs Anger China, Canada
Possible retaliation from countries like China and Canada also weighed on investor sentiment. Following the announcement of new tariffs, China, the biggest owner of U.S. Treasury is likely to cut down its purchases. Additionally, China, which happens to be the second-biggest consumer of U.S. agricultural exports, per the U.S. Department of Agriculture Foreign Agricultural Service, as of January 2017, might take actions that will affect the U.S. agriculture industry.
Canada’s economy is already suffering from sluggishness and recorded Q4 GDP growth of only 1.7%. It is likely to be severely impacted by these new tariffs as the country exports around 90% of its steel and 41% of its aluminum to the United States. In fact, Canadian Prime Minister Justin Trudeau said that this move by Trump is "absolutely unacceptable."
How to Identify Low-Risk Funds?
Before selecting funds, it is important to identify appropriate indicators that can effectively measure the risk level of a fund. This is why we have used Sharpe ratio to screen low-risk mutual funds. Sharpe ratio generally measures a fund’s average returns relative to the level of volatility experienced by the same. Further, Sharpe ratio indicates how much extra returns one can derive from a portfolio by taking on additional risk.
This means that the higher the Sharpe ratio, the more attractive the fund will be among risk-averse investors. Now, most investors believe that mutual funds with a Sharpe ratio higher than 1 are lucrative. (Read: 4 Top-Ranked Mutual Funds with a Good Sharpe Ratio)
5 Best Low-Risk Funds in Focus
We have selected five mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) and have a 3-year Sharpe ratio greater than 1. Moreover, these funds have impressive one-year annualized returns. They also have minimum initial investment within $5000 and low expense ratios.
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.
Fidelity Conservative Income Bond seeks growth of income and preservation of capital. FCONX invests a majority of its assets in high-quality investment-grade debt securities and dollar-denominated money market instruments of different types, and repurchase agreements for those securities. The fund has maturities of maximum three years.
The fund has one-year annualized returns of 1.3% and an expense ratio of 0.35% as compared with the category average of 0.50%. FCONX has a Sharpe ratio of 2.70, higher than category average of 1.08.
PIMCO Income D invests a minimum of 65% of its assets in Fixed Income Instruments of different maturities. It also invests nearly half of its assets in high-yield securities which are rated at least Caa by Moody's, or equivalently by Fitch or S&P. PONDX seeks growth of income and capital for the long run.
The fund has one-year annualized returns of 5.5% and an expense ratio of 0.79% as compared with the category average of 1.02%. PONDX has a Sharpe ratio of 2.15, higher than category average of 0.82.
Colorado BondShares A Tax-Exempt (HICOX - Free Report) seeks returns, which are exempted from both Colorado state and federal income taxes. The fund invests heavily in tax-exempted securities, including bonds and notes. It may also invest in tax-free municipal leases issued by public authorities, municipalities and political subdivisions under the State of Colorado.
The fund has one-year annualized returns of 6.3%, and an expense ratio of 0.61% as compared with the category average of 0.87%. HICOX has a Sharpe ratio of 2.60, higher than category average of 0.30.
Fidelity Japan Smaller Companies (FJSCX - Free Report) invests mainly in those small-cap companies that are economically based in Japan. These small-cap companies have market cap similar to those included on the JASDAQ Index or the Russell/Nomura Mid-Small Cap Index. FJSCX may also invest in large-cap companies.
The fund has one-year annualized returns of 29%, and an expense ratio of 0.94% as compared with the category average of 1.33%. FJSCX has a Sharpe ratio of 1.69, higher than category average of 0.89.
Oppenheimer Global Opportunities Y (OGIYX - Free Report) primarily invests in a wide range of domestic and foreign equity securities. OGIYX focuses on acquiring stocks but may also purchase debt securities. The fund may invest around one-fourth of its assets in securities that are rated lower than investment-grade or "junk bonds." Moreover, OGIYX may invest in developing or emerging countries.
The fund has one-year annualized returns of 48.2%, and an expense ratio of 0.91% as compared with the category average of 1.38%. OGIYX has a Sharpe ratio of 1.35, higher than category average of 0.77.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
5 Low-Risk Mutual Funds to Buy on Tariff-Induced Uncertainty
On Mar 1, President Trump said the United States will impose tariffs of 25% on steel imports and 10% on aluminum imports next week. Trump added that this move will come as the nation will focus on building and improving its steel and aluminum industry. Following this announcement, fears of possible retaliation from countries like China and Canada and the European Union (EU) heightened.
Uncertainty over Trump’s new tariffs has dampened investor sentiment to a significant extent. In this context, mutual funds that are capable of offering favorable returns and bear a lower level of risk might be prudent investment options. In order to identify low-risk mutual funds, we have used Sharpe ratio, which is used to measure a fund’s risk-adjusted returns.
Millions of Workers to be Affected, EU Retaliation Likely
Trump’s decision to raise tariffs on steel and aluminum imports will bring short-term benefits for steel-producing companies. However, it is likely to hurt those manufacturing companies which are major steel consumers. This in turn will affect around 6.5 million workers, per the American Iron & Steel Institute, involved in these kinds of steel-consuming manufacturing companies, which is significantly higher than the 140,000 workers engaged in U.S. steel producing companies.
Additionally, Jean-Claude Juncker, President of the EU Commission said that in case the U.S. increases tariffs on steel and aluminum imports, the EU will “not sit idly.” Instead, Juncker promised that “counter measures” will be taken against the United States and “the EU will react firmly and commensurately to defend” their interests. Trump, however, threatened to counter this action of the EU with a tax on cars imported from the economic bloc.
Trump’s Tariffs Anger China, Canada
Possible retaliation from countries like China and Canada also weighed on investor sentiment. Following the announcement of new tariffs, China, the biggest owner of U.S. Treasury is likely to cut down its purchases. Additionally, China, which happens to be the second-biggest consumer of U.S. agricultural exports, per the U.S. Department of Agriculture Foreign Agricultural Service, as of January 2017, might take actions that will affect the U.S. agriculture industry.
Canada’s economy is already suffering from sluggishness and recorded Q4 GDP growth of only 1.7%. It is likely to be severely impacted by these new tariffs as the country exports around 90% of its steel and 41% of its aluminum to the United States. In fact, Canadian Prime Minister Justin Trudeau said that this move by Trump is "absolutely unacceptable."
How to Identify Low-Risk Funds?
Before selecting funds, it is important to identify appropriate indicators that can effectively measure the risk level of a fund. This is why we have used Sharpe ratio to screen low-risk mutual funds. Sharpe ratio generally measures a fund’s average returns relative to the level of volatility experienced by the same. Further, Sharpe ratio indicates how much extra returns one can derive from a portfolio by taking on additional risk.
This means that the higher the Sharpe ratio, the more attractive the fund will be among risk-averse investors. Now, most investors believe that mutual funds with a Sharpe ratio higher than 1 are lucrative. (Read: 4 Top-Ranked Mutual Funds with a Good Sharpe Ratio)
5 Best Low-Risk Funds in Focus
We have selected five mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) and have a 3-year Sharpe ratio greater than 1. Moreover, these funds have impressive one-year annualized returns. They also have minimum initial investment within $5000 and low expense ratios.
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.
Fidelity Conservative Income Bond seeks growth of income and preservation of capital. FCONX invests a majority of its assets in high-quality investment-grade debt securities and dollar-denominated money market instruments of different types, and repurchase agreements for those securities. The fund has maturities of maximum three years.
The fund has one-year annualized returns of 1.3% and an expense ratio of 0.35% as compared with the category average of 0.50%. FCONX has a Sharpe ratio of 2.70, higher than category average of 1.08.
PIMCO Income D invests a minimum of 65% of its assets in Fixed Income Instruments of different maturities. It also invests nearly half of its assets in high-yield securities which are rated at least Caa by Moody's, or equivalently by Fitch or S&P. PONDX seeks growth of income and capital for the long run.
The fund has one-year annualized returns of 5.5% and an expense ratio of 0.79% as compared with the category average of 1.02%. PONDX has a Sharpe ratio of 2.15, higher than category average of 0.82.
Colorado BondShares A Tax-Exempt (HICOX - Free Report) seeks returns, which are exempted from both Colorado state and federal income taxes. The fund invests heavily in tax-exempted securities, including bonds and notes. It may also invest in tax-free municipal leases issued by public authorities, municipalities and political subdivisions under the State of Colorado.
The fund has one-year annualized returns of 6.3%, and an expense ratio of 0.61% as compared with the category average of 0.87%. HICOX has a Sharpe ratio of 2.60, higher than category average of 0.30.
Fidelity Japan Smaller Companies (FJSCX - Free Report) invests mainly in those small-cap companies that are economically based in Japan. These small-cap companies have market cap similar to those included on the JASDAQ Index or the Russell/Nomura Mid-Small Cap Index. FJSCX may also invest in large-cap companies.
The fund has one-year annualized returns of 29%, and an expense ratio of 0.94% as compared with the category average of 1.33%. FJSCX has a Sharpe ratio of 1.69, higher than category average of 0.89.
Oppenheimer Global Opportunities Y (OGIYX - Free Report) primarily invests in a wide range of domestic and foreign equity securities. OGIYX focuses on acquiring stocks but may also purchase debt securities. The fund may invest around one-fourth of its assets in securities that are rated lower than investment-grade or "junk bonds." Moreover, OGIYX may invest in developing or emerging countries.
The fund has one-year annualized returns of 48.2%, and an expense ratio of 0.91% as compared with the category average of 1.38%. OGIYX has a Sharpe ratio of 1.35, higher than category average of 0.77.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>