Investors always look for investment options that involve low-expense but have the potential to yield strong returns. Mutual funds carrying no-sales load are such an option. No-load mutual funds with low expense ratio are quite attractive for investors.
Keeping this in mind, we will try to highlight some potential mutual funds with the above characteristics. But before doing that let’s have a brief look at sales load and expense ratios.
A Brief Look at Sales Load & Expense Ratio
Mutual funds with low expense ratio and no sales loads have always grabbed investors’ attention. No-load funds are those that do not bear any sales or commission charge at the time of buying or selling funds. Sales load is normally divided into front end sales load and back end sales load. Front end sales load is the fees that an investor must pay at the time of an investment. Back end sales load is the fees that an investor must pay while selling an investment.
Meanwhile, 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. A mutual fund with a low expense ratio utilizes its assets effectively and generates attractive returns for its investors. An expense ratio less than 0.75% is considered low, whereas an expense ratio above 1.5% is generally considered high.
Growing Popularity of Low Expense Funds
The growing popularity of no-load mutual funds led these to outperform mutual funds that carry sales load over the past few years and 2016 was no exception. The top 100 funds out of the 10,181 no-load funds we studied registered an average total return of 59.6% last year, compared to the top 100 load funds’ average total return of 37.6%. Moreover, due to stiff competition in mutual fund markets, the majority of the players opted to slash expense ratios of their funds over the last few years.
For an instance, Charles Schwab recently announced a reduction in expense ratios for some of its index mutual funds and also decided to eliminate minimum investment criteria for these funds. Schwab S&P 500 Index (SWPPX - Free Report) and Schwab Small Cap Index (SWSSX - Free Report) now carry expense ratios of 0.03% and 0.06%, respectively, one of the lowest within their peers. Another big player, Vanguard also opted to cut fees for a significant number of its mutual funds over last year.
5 Top-Ranked No-Load Funds
Given this backdrop, we have handpicked five no-load mutual funds that come with a low expense ratio, have a strong performance history, and carry a Zacks Mutual Fund Rank #1 (Strong Buy).
Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify the 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 their likely future success.
These funds also have encouraging one-, three- and five-year annualized returns. The minimum initial investment is within $5000.
PRIMECAP Odyssey Aggressive Growth (POAGX - Free Report) primarily invests in common stocks of domestic companies, which are expected to experience above-average earnings growth. POAGX has an annual expense ratio of 0.63%, lower than the category average of 1.25%. POAGX has a one-, three- and five-year annualized returns of 32.4%, 11.2% and 19.1%, respectively.
American Century Utilities Investor (BULIX - Free Report) invests a large chunk of its assets in securities of companies primarily involved in operations related to utilities domain. BULIX has an annual expense ratio of 0.68%, lower than the category average of 1.24%. BULIX has one-, three- and five-year annualized returns of 15.5%, 10.9% and 11.5%, respectively.
Commerce Value (CFVLX - Free Report) invests mostly in common stocks of companies listed in the Russell 1000 Value Index, which are also expected to pay solid dividend yield. CFVLX has an annual expense ratio of 0.70%, lower than the category average of 1.07%. CFVLX has one-, three- and five-year annualized returns of 24%, 10.5% and 13.7%, respectively.
Fidelity 500 Index Investor invests in common stocks of companies included in the S&P 500 Index. FUSEX has an annual expense ratio of 0.10%, lower than the category average of 1.01%. FUSEX has one-, three- and five-year annualized returns of 20.1%, 10.8% and 13.8%, respectively.
DFA Tax-Managed US Equity (DTMEX - Free Report) invests in securities of domestic companies from a wide range of sectors. DTMEX has an annual expense ratio of 0.22%, lower than the category average of 1.01%. DTMEX has one-, three- and five-year annualized returns of 21.7%, 10.2% and 13.7%, respectively.
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