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Geopolitical Worries Weigh on Markets: 5 Low-Risk Fund Picks
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In the week ended May 25, key indexes ended mostly in the red after a steep reduction of oil prices hit energy stocks. Decline in oil prices along with recent geopolitical concerns weighed on investor sentiment.
In this context, mutual funds that are capable of offering favorable returns and bear a lower level of risk might be prudent investment options.
Oil Price Decline, Geopolitical Tensions Loom
Oil prices declined on May 25 following the news that Oil and Petroleum Exporting Countries (OPEC) and Russia are planning to increase crude oil production by around 1 million barrels per day to overcome the recent decline in oil production from Iran and Venezuela.
WTI crude oil future decreased 4.2%, to settle at $67.88 per barrel, registering its lowest closing of the futures contract since May 1. Similarly, Brent oil, the international benchmark future declined 3.1%, to $76.44 a barrel, posting its lowest settlement since May 8.
Slump in crude prices led the Energy Select Sector SPDR (XLE) to fall 2.6% on May 25. In fact, the sector declined 4.5% last week, becoming the worst performer among the key S&P 500 sectors.
Additionally, geopolitical worries increased last week, after President Trump said that he wasn’t satisfied with the progress of the U.S.-China trade talks. Later in the week, Trump also scrapped his planned meeting with North Korea’s premier Kim Jong Un. Moreover, Trump threatened to impose tariffs on automobile imports.
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 return 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 on Focus
In this context, we have selected five mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), and have a three-year Sharpe ratio greater than 1. Moreover, these funds have impressive one-year and three-year 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.
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.
HICOX carries an expense ratio of 0.61% compared with the category average of 1.17%. Moreover, HICOX requires a minimal initial investment of $500. The fund has one-year and three-year returns of 5.8% and 4.5%, respectively.
The fund has a Zacks Mutual Fund Rank #1. Further, Fred R. Kelly is the fund manager of HICOX since 1990. HICOX has a Sharpe ratio of 2.41 for the last three years.
Fidelity Conservative Income Bond invests the 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.
FCONX carries an expense ratio of 0.35% compared with the category average of 0.35%. Moreover, FCONX requires a minimal initial investment of $2,500. The fund has one-year and three-year returns of 1.4% and 1%, respectively.
The fund has a Zacks Mutual Fund Rank #1. Further, Robert Galusza is one of the fund managers of FCONX since 2015. FCONX has a Sharpe ratio of 2.20 for the last three years.
Pacific Funds Floating Rate Income Advisor (PLFDX - Free Report) invests a large chunk of its assets in floating rate debt securities and floating rate loans. The fund may also invest around one-fourth of its assets in dollar-denominated securities issued by foreign companies based in developed markets.
PLFDX carries an expense ratio of 0.76% compared with the category average of 1.11%. Moreover, PLFDX requires a minimal initial investment of $0. The fund has one-year and three-year returns of 4.1% and 4.3%, respectively.
The fund has a Zacks Mutual Fund Rank #2. Further, J.P. Leasure is one of the fund managers of PLFDX since 2011. PLFDX has a Sharpe ratio of 1.98 for the last three years.
Performance Trust Strategic Bond (PTIAX - Free Report) invests a huge portion of its assets in fixed-income instruments including municipal, government and corporate bonds, mortgage-backed and asset-backed securities. These fixed-income securities are issued by different U.S. municipal, government and private-sector entities.
PTIAX carries an expense ratio of 0.77% compared with the category average of 0.83%. Moreover, PTIAX requires a minimal initial investment of $2,500. The fund has one-year and three-year returns of 4% and 4.5%, respectively.
The fund has a Zacks Mutual Fund Rank #1. Further, Anthony J. Harris is one of the fund managers of PTIAX since 2010. PTIAX has a Sharpe ratio of 1.79 for the last three years.
Lord Abbett Floating Rate F (LFRFX - Free Report) invests a bulk of its assets in adjustable or floating rate senior loans to seek income. LFRFX may invest around one-fourth of its assets in foreign securities including emerging market securities. The fund may also invest around one-fifth of its assets in other debt securities and nearly one-tenth of its assets in derivatives.
LFRFX carries an expense ratio of 0.69% compared with the category average of 1.11%. Moreover, LFRFX requires a minimal initial investment of $0. The fund has one-year and three-year returns of 4.4% and 4.3%, respectively.
The fund has a Zacks Mutual Fund Rank #1. Further, Jeffrey D. Lapin is one of the fund managers of LFRFX since 2012. LFRFX has a Sharpe ratio of 1.52 for the last three years.
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Geopolitical Worries Weigh on Markets: 5 Low-Risk Fund Picks
In the week ended May 25, key indexes ended mostly in the red after a steep reduction of oil prices hit energy stocks. Decline in oil prices along with recent geopolitical concerns weighed on investor sentiment.
In this context, mutual funds that are capable of offering favorable returns and bear a lower level of risk might be prudent investment options.
Oil Price Decline, Geopolitical Tensions Loom
Oil prices declined on May 25 following the news that Oil and Petroleum Exporting Countries (OPEC) and Russia are planning to increase crude oil production by around 1 million barrels per day to overcome the recent decline in oil production from Iran and Venezuela.
WTI crude oil future decreased 4.2%, to settle at $67.88 per barrel, registering its lowest closing of the futures contract since May 1. Similarly, Brent oil, the international benchmark future declined 3.1%, to $76.44 a barrel, posting its lowest settlement since May 8.
Slump in crude prices led the Energy Select Sector SPDR (XLE) to fall 2.6% on May 25. In fact, the sector declined 4.5% last week, becoming the worst performer among the key S&P 500 sectors.
Additionally, geopolitical worries increased last week, after President Trump said that he wasn’t satisfied with the progress of the U.S.-China trade talks. Later in the week, Trump also scrapped his planned meeting with North Korea’s premier Kim Jong Un. Moreover, Trump threatened to impose tariffs on automobile imports.
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 return 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 on Focus
In this context, we have selected five mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), and have a three-year Sharpe ratio greater than 1. Moreover, these funds have impressive one-year and three-year 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.
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.
HICOX carries an expense ratio of 0.61% compared with the category average of 1.17%. Moreover, HICOX requires a minimal initial investment of $500. The fund has one-year and three-year returns of 5.8% and 4.5%, respectively.
The fund has a Zacks Mutual Fund Rank #1. Further, Fred R. Kelly is the fund manager of HICOX since 1990. HICOX has a Sharpe ratio of 2.41 for the last three years.
Fidelity Conservative Income Bond invests the 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.
FCONX carries an expense ratio of 0.35% compared with the category average of 0.35%. Moreover, FCONX requires a minimal initial investment of $2,500. The fund has one-year and three-year returns of 1.4% and 1%, respectively.
The fund has a Zacks Mutual Fund Rank #1. Further, Robert Galusza is one of the fund managers of FCONX since 2015. FCONX has a Sharpe ratio of 2.20 for the last three years.
Pacific Funds Floating Rate Income Advisor (PLFDX - Free Report) invests a large chunk of its assets in floating rate debt securities and floating rate loans. The fund may also invest around one-fourth of its assets in dollar-denominated securities issued by foreign companies based in developed markets.
PLFDX carries an expense ratio of 0.76% compared with the category average of 1.11%. Moreover, PLFDX requires a minimal initial investment of $0. The fund has one-year and three-year returns of 4.1% and 4.3%, respectively.
The fund has a Zacks Mutual Fund Rank #2. Further, J.P. Leasure is one of the fund managers of PLFDX since 2011. PLFDX has a Sharpe ratio of 1.98 for the last three years.
Performance Trust Strategic Bond (PTIAX - Free Report) invests a huge portion of its assets in fixed-income instruments including municipal, government and corporate bonds, mortgage-backed and asset-backed securities. These fixed-income securities are issued by different U.S. municipal, government and private-sector entities.
PTIAX carries an expense ratio of 0.77% compared with the category average of 0.83%. Moreover, PTIAX requires a minimal initial investment of $2,500. The fund has one-year and three-year returns of 4% and 4.5%, respectively.
The fund has a Zacks Mutual Fund Rank #1. Further, Anthony J. Harris is one of the fund managers of PTIAX since 2010. PTIAX has a Sharpe ratio of 1.79 for the last three years.
Lord Abbett Floating Rate F (LFRFX - Free Report) invests a bulk of its assets in adjustable or floating rate senior loans to seek income. LFRFX may invest around one-fourth of its assets in foreign securities including emerging market securities. The fund may also invest around one-fifth of its assets in other debt securities and nearly one-tenth of its assets in derivatives.
LFRFX carries an expense ratio of 0.69% compared with the category average of 1.11%. Moreover, LFRFX requires a minimal initial investment of $0. The fund has one-year and three-year returns of 4.4% and 4.3%, respectively.
The fund has a Zacks Mutual Fund Rank #1. Further, Jeffrey D. Lapin is one of the fund managers of LFRFX since 2012. LFRFX has a Sharpe ratio of 1.52 for the last three years.
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 >>