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Mutual Fund Commentary

Major indexes reached their record levels in recent times after the markets started accepting President-elect Donald Trump’s domestic economic growth focused agenda. Following these developments investors are focusing on equity securities. Like stocks, mutual funds are also considered a prudent investment option.

There are a variety of parameters that are used to select mutual funds. Among these, a key parameter is the expense an investor must incur to hold and sell mutual funds. Here, we have selected some of the best performing mutual funds that have low expenses and stable returns. Further, recent gains in markets are expected to have a positive impact on the demand of low costs funds.

Significance of Low Expense Ratio

Mutual funds with low expense ratio and no sales loads have always grabbed investors’ attention. Expense ratio is defined as the percentage of total assets required to operate a fund. The percentage is determined annually, by dividing a fund's operating expenses by the average dollar value of assets under fund management. The fees resulting from the buying and selling of fund assets are not included in expense ratios.

A mutual fund with low expense ratio utilizes its assets effectively and generates attractive returns for its investors. An expense ratio between 0.5% and 0.75% is considered low, whereas expense ratio above 1.5% is generally considered high.

We have compared the top 100 mutual funds with a Zacks Mutual Fund Rank #1 (Strong Buy) and high- and low expense ratio mutual funds. The top 100 funds out of 411 low expense ratio funds we studied have registered an average return of 13.4% year-to-date (YTD) as compared to the top 100 high expense ratio funds’ average return of 11.1%.

Why Choose No Load Funds?

No-load funds are those that do not bear any sales or commission charge at the time of buying or selling funds. Sales load are normally divided into front end sales loads and back end sales loads. Front end sales load is the fees that an investor must pay at the time of an investment. While, back end sales load is the fees that an investor must pay while selling an investment.

Here, we have compared the average YTD return of the top 100 no-load funds with the top 100 load funds. Out of the total 783 top-ranked non-load funds, the top 100 funds registered an average YTD return of 25.4%, whereas from 250 load funds, the top 100 funds posted an average YTD return of 15.2%.

Moreover, the best performer among the no-load fund category, U.S. Global Investors World Precious Minerals (UNWPX - Free Report) , has a YTD return of 76.7%. The top load fund, Franklin Gold and Precious Metals A (FKRCX - Free Report) , has a YTD return of 55.6%.

Consider These 4 Low Cost Funds

We have highlighted four no-load mutual funds with an expense ratio below 0.75% that carry a Zacks Mutual Fund Rank #1 (Strong 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 returns which are above the average year-to-date return of top 100 low expense ratio funds. The minimum initial investment is within $5,000 and net assets are above $50 million.

Fidelity Select Electronics Portfolio (FSELX - Free Report) seeks capital appreciation. FSELX invests a lion’s share of its assets in common stocks of companies whose primary operations are related to electronic components, equipment vendors, electronic component manufacturers, electronic component distributors, electronic instruments and electronic systems vendors. Investments are made in both domestic and foreign companies. FSELX uses fundamental analysis to select companies for investment purposes.

Fidelity Select Electronics Portfolio is non-diversified fund and has returned 30.4% YTD. FSELX has an expense ratio of 0.74% as compared to category average of 1.48%.

Vanguard Energy Investor (VGENX - Free Report) invests a major portion of its assets in equity securities of companies from the energy sector. VGENX normally invests in stocks of companies that are engaged in the production, marketing, transmission and research of energy. The fund generally invests in common stocks of companies.

Vanguard Energy Investor has returned 28.3% over the YTD frame. VGENX has an expense ratio of 0.37% compared with the category average of 1.46%.

American Century Utilities Investor (BULIX - Free Report) seeks growth of capital and income for the long run. BULIX invests a bulk of its assets in equity securities of companies engaged in the utilities industry. The fund’ portfolio is developed using risk controls and qualitative and quantitative management process.

American Century Utilities Investor has returned 17.2% YTD. BULIX has an expense ratio of 0.68% compared with the category average of 1.32%.

DFA US Large Cap Value III (DFUVX - Free Report) invests a majority of its assets in value stocks of large cap companies. DFUVX seeks appreciation of capital for the long run. The fund generally invests all its assets in the U.S. Value Series of the "Trust", which have similar investment policies and objective like the U.S. Value Portfolio.

DFA US Large Cap Value III has returned 16% YTD. DFUVX has an expense ratio of 0.13% compared with the category average of 1.14%.

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