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4 Best High-Yield Mutual Funds for 2017

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President-elect Donald Trump provided little clarity on economic policies during his first news conference last week. Trump offered no details on tax cuts and infrastructure outlays that had powered a record-breaking rally over the last two months.  Investors began to question the run-up in stock prices following Trump’s promises of fiscal stimulus measures even as they gear up for another earnings season.

Meanwhile, there have been indications of harsher trade policies from the Trump camp, which might jeopardize the bullish sentiment. Last year has been the most volatile in the recent past, with a historic election not only in the U.S. but also in Britain and Italy. Needless to say, Trump’s market-friendly policies is turning the broader market into one giant bubble, raising possibilities of disenchantment for investors in the near term. Due to such widespread uncertainty, income seeking investors should look for funds that are offering hefty dividends.

Lack of Policy Detail

Trump’s press conference last week, the first since July, disappointed investors due to the lack of policy details. Trump had earlier promised to deregulate certain sectors, lower corporate taxes and inject fiscal stimulus measures, which are expected to drive economic growth. His promises have more or less helped the stock market gain traction over two months.

Earlier, Trump had revealed plans to trim business tax rate to 15% from 35%. The lower tax burden is expected to boost profits for large companies. Trump is also in favor of beefing up public spending on infrastructure by hundreds of billions of dollars. He said that he will support more spending on transportation and telecommunications infrastructure, clean water and electricity transmission in order to accelerate economic growth.

Instead on elaborating on his prior claims, the U.S. President-elect lashed out at U.S. spy and news agencies over what he called a 'phony' Russia dossier. He covered topics on Russian hacking but lack of details on his administrative plans left investors in the dark.

He also severely criticized the high drug prices and believes that the pharmaceutical companies are “getting away with murder” (read more: Deja Vu for Drug Stocks as Trump Slams Drug Pricing Again).

Trade Policy May Hit Stocks

By naming China hawk Peter Navarro as the head of a newly formed White House National Trade Council, the Trump administration has clearly indicated that the plan of imposing tax on imports is on track. Navarro along with Trump’s pick for commerce secretary, Wilbur Ross, favor border adjustment tax that is also included in House Speaker Paul Ryan’s “Better Way” tax-reform blueprint.

If such a tax gets implemented, economists at Deutsche Bank AG (DB - Free Report) estimate that inflation will cross the Fed’s desired target level of 2% and push the dollar up by about 15%. This in turn will result in negative earnings revision for the S&P 500 and will be a deterrent to economic growth.  A stronger dollar hammers profits at U.S. multinationals as prices of goods and services escalate.

Intensely Tense Situation for Global Markets

From a geopolitical perspective, election of Trump as U.S. president has intensified anxieties, with the outspoken, real-estate mogul planning to “greatly strengthen and expand” the country’s nuclear capabilities, raising the possibility of a Cold War-era style arms race. His tweets on potentially massive changes to U.S. policy on China also raise uncertainty for the economy. Apart from the possible Trump move, economic growth in China also remains uncertain.

The impact of the fallout of U.K from the European Union (EU), historic election in Italy and other populist movements in Europe on the broader markets is also unknown. There is possibility of a ‘Nexit’ – Netherlands leaving the Eurozone – as well. Opting out of the EU will benefit the Dutch in a number of ways including relaxed regulations and reduced spending on immigrants.

4 Top High-Yield Mutual Funds to Buy Now

Thanks to the aforementioned factors, this year is certainly cast into uncertainty, which calls for investing in high-yield paying mutual funds. Companies that pay high dividends put a ceiling on economic uncertainty. These companies have steady cash flows and are mostly financially stable and mature companies, which help their stock prices to increase gradually over a period of time.  Moreover, dividends are less taxed as compared to interest income which helps your portfolio grow at a compounded rate and offer protection against earnings manipulation.

We have selected four mutual funds that offer a dividend yield of more than 3%, have greater than 70% of its holdings in stocks, have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

VALIC Company I Large Cap Core (VLCCX - Free Report) invests in equity securities of U.S. companies with large market capitalization (generally over $2 billion) that the sub-adviser believes are undervalued and have the potential for long-term growth. The fund’s dividend yield is 3.21%. VLCCX’s 3-year and 5-year annualized returns are 8.9% and 14.9%, respectively. Annual expense ratio of 0.83% is lower than the category average of 1.01%. VLCCX has a Zacks Mutual Fund Rank #1.

Principal Large Cap Value III R5 (PPSRX - Free Report) seeks long-term growth of capital. Under normal circumstances, the fund invests the majority of its net assets, plus any borrowings for investment purposes, in companies with large market capitalization at the time of purchase. The fund’s dividend yield is 3.56%. PPSRX’s 3-year and 5-year annualized returns are 7.8% and 12.9%, respectively. Annual expense ratio of 1.03% is below the category average of 1.07%. PPSRX has a Zacks Mutual Fund Rank #2.

AB Equity Income I (AUIIX - Free Report) invests a large portion of its net assets in equity securities.The fund invests primarily in income-producing securities. The fund’s dividend yield is 3.17%. AUIIX’s 3-year and 5-year annualized returns are 6.3% and 11.2%, respectively. Annual expense ratio of 0.74% is lower than the category average of 1.07%. AUIIX has a Zacks Mutual Fund Rank #2.

AB Global Real Estate Investment I (AEEIX - Free Report) invests the majority of its net assets in the equity securities of real estate investment trusts, or REITs, and other real estate industry companies, such as real estate operating companies, or REOCs. The fund’s dividend yield is 3.54%. AEEIX’s 3-year and 5-year annualized returns are 5.7% and 9.8%, respectively. Annual expense ratio of 0.99% is below the category average of 1.37%. AEEIX has a Zacks Mutual Fund Rank #2.

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