All the three major U.S. benchmarks posted strong performances during the first half of this year. This was attributable to a pickup in economic activity in the U.S., solid corporate earnings and hopes of Trump’s pro-growth economic policies. However, overvaluation concerns, decline in oil price and doubts over Trump’s administration in the latter part of this period weighed on investor sentiment.
Given the negative outlook, no-load mutual funds have once again grabbed the spotlight. Mutual funds with no sales or commission charges are known as no-load funds. This generally happens when funds are traded directly through the investment company and not through some secondary entity.
This implies that they do not carry the burden of management funds unlike funds with entry or exit loads. It comes as no surprise, then that no-load funds have managed to provide better returns over their load peers so far this year.
Strong Performance in First Half 2017
In the first half of the year, the Dow, the S&P 500 and the Nasdaq increased 8%, 8.2% and 14.1%, respectively. The Dow and the S&P 500 posted their best first half performance since 2013, while the Nasdaq recorded its best performance for the period since 2009.
Positive sentiments over Trump’s economic policies including “massive” tax cuts, deregulation initiatives and surge in infrastructure spending propelled the indexes higher in the first part of the previous half. But markets managed to maintain their sheen even when Trump’s policies failed to gain passage in the Congress, on the back of a strong job market, more confident consumers and solid corporate earnings. (Read More)
However, investor enthusiasm toward tech majors during the first half has raised overvaluation concerns. Further, Senate Republicans’ delay in passing the new healthcare Bill raised doubts over whether the Trump administration can put its much awaited pro-business policies into action.
Additionally, the decline in bond yields and drop in commodity prices raised concerns of limited growth during the second half of this year.Meanwhile, falling oil prices remain a strong point of concern for energy companies.Given such dissuading events, no-load funds could be a hit among investors in coming months.
Why Invest In 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. This generally happens when funds are traded directly through the investment company and not through some secondary entity. Sales load is normally divided into front end sales load and back end sales load.
Front End Sales Loads: These are fees that an investor must pay at the time of investment. Also, categorized as “Sales Charge (Load) on Purchases”, these are charges an investor pays while purchasing a fund. The front-end sales load is deducted from the actual invested amount, and the remaining portion is actually used to buy funds.
Back-End Sales Loads: These are fees that an investor must pay while selling the investments. Categorized as the “Deferred Sales Charge (Load)", these fees are deducted while redeeming fund shares. The advantage of back-end sales load over front-end sales load is that the entire capital (minus other charges) is invested at the time of purchases. The sales load here is calculated off the initial investment made and not based on ultimate fund value.
Comparative Analysis of No-Load Funds
Here, among the top-ranked no-load fund category, T. Rowe Price Global Technology (PRGTX - Free Report) has no front or back sales loads. The best-rated load fund Fidelity Advisor Technology A (FADTX - Free Report) has sales load of 5.75.
Moreover, we have compared the average year-to-date (YTD) returns of the top 100 no-load funds with the top 100 load funds. Out of the total 768 Zacks Rank #1 (Strong Buy) non-load funds, the top 150 registered average YTD returns of 19.3%, whereas from 265 Zacks Rank #1 load funds, the top 150 posted average YTD returns of 12.6%. With no-load funds registering comparatively better returns than load funds so far this year, no-load funds are expected to get more love from investors in the coming months.
5 Zacks Rank #1 No-Load Funds to Buy Now
We have highlighted five no-load mutual funds flaunting a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging first half and YTD returns. Additionally, the minimum initial investment is within $5000 and net assets are above $50 million.
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.
Matthews China Investor (MCHFX - Free Report) invests the large part of its assets in preferred and common stocks of companies based in China and Hong Kong.MCHFXinvests mainly in stocks of companies involved in Asian emerging markets. The fund seeks appreciation of capital for the long run.
MCHFX has an annual expense ratio of 1.18%, which is below the category average of 1.33%. The fund has first-half and YTD returns of 30.1% and 38.9%, respectively.
Fidelity Select Technology (FSPTX - Free Report) seeks capital growth over the long run. FSPTX invests the lion’s share of its assets in common stocks of companies primarily involved in production, development and sale of products used for technological advancement. FSPTX invests in both U.S. and non-U.S. companies.
FSPTX has an annual expense ratio of 0.76%, lower than the category average of 1.46%. The fund has first-half and YTD returns of 23.7% and 35.5%, respectively.
Fidelity Select Medical Equipment & Systems (FSMEX - Free Report) invests the majority of its assets in securities of companies principally engaged in research, development, manufacture, distribution, supply, or sale of medical equipment and devices and related technologies. The fund seeks growth of capital by investing primarily in common stocks.
FSMEX has an annual expense ratio of 0.76%, which is below the category average of 1.30%. The fund has first-half and YTD returns of 25.7% and 23.7%, respectively.
Oppenheimer Global Opportunities Y (OGIYX - Free Report) invests primarily in equity securities of companies throughout the globe including the U.S. The fund may also invest around one-fourth of its assets in debt securities which are rated below investment grade. It may also invest in mid- and small-cap companies.
OGIYX has an annual expense ratio of 0.94%, which is below the category average of 1.28%. The fund has first-half and YTD returns of 24.9% and 27.5%, respectively.
Vanguard International Growth Investor (VWIGX - Free Report) invests predominantly in stocks of companies located outside the U.S. and expected to diversify its assets in countries across developed and emerging markets. The fund focuses mainly on those companies, which have above growth potential.
VWIGX has an annual expense ratio of 0.46%, which is below the category average of 1.16%. The fund has first-half and YTD returns of 24.2% and 31.7%, respectively.
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 >>