U.S. stocks had an awfully bad first six weeks this year in which investors fled from stocks and invested in safe haven assets, including government bonds and gold. A slump in oil prices and volatility running rampant in China’s financial markets dragged the broader markets down.
However, oil prices bounced back in the last one and a half months banking on the possibility of a positive outcome between major oil producers to freeze production levels. A weaker dollar also had a positive impact on oil prices. Meanwhile, China looks a bit better as it moves toward a consumer-driven economy. China’s regulatory measures also raised hopes of a much stable economy.
Coming to the domestic front, Fed Chair Janet Yellen reassured investors that she expects rate hikes to be gradual in the future. These factors collectively helped U.S. stocks to finish one of their best-performing months in March since last October. Given this optimism, investors might look into equity mutual funds that boast strong fundamentals.
Factors Boosting Markets
Weak demand for oil in an over supplied market was primarily responsible for having a negative impact on the broader markets during the beginning of the year. Crude oil dropped below $27 a barrel in mid-February. But, since then, oil prices gained more than 40% ahead of the Apr 17 meeting in Doha where the OPEC and Russia will discuss an output freeze aimed at boosting prices. Additionally, the U.S. dollar has also weakened considerably, which eventually lifted oil prices.
Meanwhile, volatility in China has also reduced considerably as indicated by a rebound in consumer sentiment. China’s official services PMI and Caixin services purchasing managers’ index (PMI) for February remained above the key figure of 50, indicating expansion in service activities. Additionally, retail sales of consumer goods gained 10.2% on a year-over-year basis during the first two months of 2016, according to the National Bureau of Statistics (NBS).
China’s regulatory measures, on the other hand, raised hopes of a much stable economy. China’s financial market regulators have imposed a ban on initial public offerings, limited margin trading, allowed government-managed pension funds to invest in equity markets and restricted large shareholders from shorting stocks, which will help investors in the long run.
Coming to the domestic front, the Fed kept the interest flat between 0.25% and 0.50% and forecast that the number of rate hikes this year will be two instead of four as projected in its December meeting. This abated fears of an immediate rate hike, which eventually boosted stocks.
Equity Funds Performance
An equity fund is a mutual fund that generally invests in stocks. Let us now look at the performance of the major equity funds in the last one-month period. Funds such as Columbia Select Large Cap Growth Fund Class A (ELGAX - Free Report) , Fidelity Magellan Fund (FMAGX - Free Report) , Janus Fund Class A , Principal LargeCap Growth Fund I Class A (PLGAX - Free Report) , American Century Growth Fund Investor Class (TWCGX - Free Report) , Vanguard Capital Opportunity Fund Investor Shares (VHCOX - Free Report) and Wells Fargo Growth Fund - Class A ( SGRAX) surged 5.7%, 6.4%, 6.2%, 6.1%, 5.7%, 5.7% and 5.2%, respectively, in the last one-month period.
However, among the funds the one that stood out is the MFS Massachusetts Investors Growth Stock Fund Class A ( (MIGFX - Free Report) , which soared 7.1% in the last month. Also, MIGFX’s standard deviation, or the volatility of returns, in the one-year period ended March 18 was 16.1%. This was much lower than the S&P 500’s 16.7%. In mutual funds, the standard deviation tells us how much the return on a fund is deviating from the expected returns based on its historical performance.
Moreover, if we consider the fund categories that come within U.S. equity fund, all have provided encouraging returns. Among the categories Mid-Cap Value, Small Value, Large Value, Mid-Cap Blend and Small Blend gained the most last month. All posted growth of more than 7%.
3 Equity Mutual Funds to Buy Now
As oil prices are climbing, China’s economic situation stabilizing to some extent and Fed not hiking rates in the near term, it is expected that U.S. stocks will move north. Banking on this uptrend, it will be wise to invest in equity mutual funds. As mentioned above, these funds have already given positive returns. Funds have been selected over stocks, since funds reduce transaction costs for investors and also diversify their portfolio without the numerous commission charges that stocks need to bear.
Here we have selected three such equity mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), have given highest year-to-date return, offer minimum initial investment within $5000, carry a low expense ratio and possess no-sales load.
Goldman Sachs International Small Cap Insights A (GICAX - Free Report) under normal circumstances invests a large portion of its net assets plus any borrowings for investment purposes in a broadly diversified portfolio of equity investments in small-cap non-U.S. issuers.
GICAX’s 3-year and 5-year annualized returns are 7.4% and 6.4%, respectively. GICAX carries a Zacks Mutual Fund Rank #1 and the annual expense ratio of 1.30% is lower than the category average of 1.40%.
American Century Mid Cap Value Investor (ACMVX - Free Report) invests a major portion of its assets in securities of mid-cap companies. ACMVX seeks to follow the capitalization range of the Russell 3000 Index in order to select medium-size companies.
ACMVX’s 3-year and 5-year annualized returns are 11.9% and 11.6%, respectively. ACMVX carries a Zacks Mutual Fund Rank #2 and the annual expense ratio of 1% is lower than the category average of 1.19%.
American Funds American Mutual A (AMRMX - Free Report) invests primarily in common stocks of companies that are likely to participate in the growth of the American economy and whose dividends appear to be sustainable. AMRMX invests primarily in securities of issuers domiciled in the United States and Canada.
AMRMX’s 3-year and 5-year annualized returns are 9.5% and 10.3%, respectively. AMRMX carries a Zacks Mutual Fund Rank #2 and the annual expense ratio of 0.58% is lower than the category average of 1.10%.
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. Pick the best mutual funds with the help of Zacks Rank.