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5 Low Beta Mutual Funds to Brave the Market Slump

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All the three key indexes registered strong declines on Feb 5, with both the Dow and the S&P 500 closing in the red for the year. Rise in bond yields continued to have a broad-based negative impact on the markets. Also, markets lost some of their gains after the Fed stated that inflation was likely to reach its desired level in the medium term and projected a gradual increase in key rates.

Additionally, upbeat economic data including a strong jobs report continued to bolster rate hike chances as early as March. Moreover, the fear-gauge, CBOE Volatility Index (VIX), jumped to its highest level since August 2015, indicating market volatility. In this context, it is important to safeguard ones portfolio from such uncertainties and invest in low beta mutual funds.

Markets in Disarray, Volatility Highest Since 2015

A higher rate environment and steady economic growth, better wage growth and increased inflation weighed on bond prices. Lower bond prices supported the 10-year U.S. Treasury yield, which was at its highest settlement since 2014. Higher treasury yields continued to weigh on equity markets.

On Feb 5, the Dow slumped 4.6% or 1,175.21 points to 24,345.75, its biggest one-day fall since Aug 10, 2011, while the S&P 500 fell 113.19 points or 4.1% to close at 2,648.94, its largest percentage decline in a day, since Aug 18, 2011. Both the S&P 500 and the Dow finished in the red for 2018. Additionally, the tech-heavy index, Nasdaq, decreased 3.8% or 273.42 points to 6,967.53.

For the week ended Feb 2, the Dow, the S&P 500 and the Nasdaq declined 4.1%, 3.9% and 3.5%, respectively. Both the Dow and the S&P 500 registered their worst weekly performance since January 2016, while the Nasdaq’s weekly decline was the biggest since February 2016.

Moreover, on Feb 5 VIX jumped 130.7% to settle at 39.94, its highest level since August 2015. A reading above 20 is considered alarming and with volatility being almost double that level, indicates the broader market is clearly in turmoil.

Rate Hike Fear Looms

In its two-day policy statement following the meeting ended Jan 31, the Fed did not raise its key interest rate. However, the central bank indicated that economic activity has increased at a “solid rate” and will continue to grow at a “moderate pace.” It also said that the labor market remained strong, while inflation will likely “move up” in 2018 and reach the desired 2% rate in the “medium term.” The Fed highlighted that the federal funds rate is likely to be increased gradually over the coming months.

Moreover, stronger GDP, low initial claims, increase in factory prices, steady job additions and stunning wage growth cemented rate hike prospects. A liftoff as early as in the Fed’s next policy meeting in March continued to weigh on sentiment.

Buy These 5 Low Beta Mutual Funds

Amid such a high level of uncertainty, it will be prudent to pick safe mutual funds. Such funds are inherently less volatile than the markets they trade in. In this case, a low beta ranges from 0 to 1.

We have selected five low beta mutual funds that have given positive one-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong 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 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).

Lord Abbett Bond-Debenture A (LBNDX - Free Report) invests a bulk of its assets in fixed income securities, including debentures and bonds. The fund may also invest heavily in high-yield securities or junk bonds. LBNDX may invest around one-fifth of its assets in various kinds of equity securities.

This High Yield - Bonds product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 6.2% and 6%, respectively.

LBNDX has an annual expense ratio of 0.81%, which is below the category average of 1.02%. The fund has one-year annualized returns of 6.8%. LBNDX carries a 3-year beta of 0.27.

Voya Global Bond W (IGBWX - Free Report) invests a large chunk of its assets in bonds issued by companies from different countries. Although the fund invests mainly in investment-grade debt securities, its investment is not limited to government and corporate bonds. IGBWX seeks maximization of returns through both growth of capital and income.

This International Bond - Developed product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 2.9% and 1.2%, respectively.

IGBWX has an annual expense ratio of 0.65%, which is below the category average of 0.98%. The fund has one-year annualized returns of 10.1%.It carries a 3-year beta of 0.90.

Janus Henderson Balanced N Fund (JABNX - Free Report) seeks growth of capital for the long run as well as capital preservation and income. JABNX invests around 35-65% of its assets in equity securities and the rest in fixed-income securities and cash equivalents.

This Allocation Balanced product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 7.8% and 10.3%, respectively.

JABNX has an annual expense ratio of 0.58%, which is below the category average of 0.90%. The fund has one-year annualized returns of 16.3%. JABNX carries a 3-year beta of 0.64.

Hartford Municipal Real Return A  primarily invests in tax-free obligations that are issued by possessions, states and territories of the United States, and its agencies and instrumentalities. A large chunk of these tax-exempt obligations that the fund invests in, are of “investment grade” quality.

This Muni - Bonds product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 2.5% and 1.8%, respectively.

HTNAX has an annual expense ratio of 0.69%, which is below the category average of 0.77%. The fund has one-year annualized returns of 2.8%.It carries a 3-year beta of 0.59.

Fidelity Equity Dividend Income (FEQTX - Free Report) seeks reasonable income and capital appreciation. FEQTX normally invests a major portion of assets in equity securities. It also invests primarily in income-producing equity securities which tend to lead to investments in large capital 'value' stocks.' 

This Large Cap Value product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 8.8% and 13.2%, respectively.

FEQTX has an annual expense ratio of 0.61%, which is below the category average of 1.05%. The fund has one-year annualized returns of 12.3%. FEQTX carries a 3-year beta of 0.91.

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