Higher bond yields continue to weigh on equities following concerns over increased inflation, raising skepticism in the market. Additionally, upbeat economic data including a strong jobs report continue to bolster rate hike chances as early as next month.
Given the negative outlook, no-load mutual funds have are again in demand. 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 that no-load funds have managed to provide better returns compared to load funds so far this year.
Markets in Disarray, Rate Hike Fear Looms
A higher rate environment, strong economic growth, steady job additions, better wage growth and increased inflation weighed on bond prices. Lower bond prices supported the 10-year U.S. Treasury yield, which was at 2.886% near its all-time high level. Higher treasury yields continue to weigh on the equity market.
Expectations of a rate hike in the Fed’s next policy meeting in March also continued to weigh on sentiments. Further, on Feb 20, the CBOE Volatility Index (VIX) jumped 7.4% to 20.89. A reading above 20 is considered alarming and indicates that the broader market is in turmoil.
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 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 at a gradual pace in the 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 Load: These are fees paid 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 Load: These are fees paid 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 purchase. 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 no-load fund category, Oppenheimer Global Opportunities Y (OGIYX - Free Report) has no front or back sales loads. The top-load fund Oppenheimer Global Opportunities A (OPGIX - Free Report) has sales load of 5.75.
Moreover, we have compared the average year-to-date (YTD) return of the top 100 no-load funds with the top 100 load funds. Out of the all the 722 Zacks Rank #1 (Strong Buy) non-load funds the top 100 funds offered a one-year average annualized return of 44.3%. In contrast, of the 267 Zacks Rank #1 load funds, the top 100 funds posted a one-year average annualized return of only 35.2%. With no-load funds registering comparatively better returns than load funds in the last one year, no-load funds are expected to get more attention in the coming months.
5 Zacks Rank #1 No-Load Fundsto Buy Now
We have highlighted five no-load mutual funds flaunting a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging one-year annualized returns. Additionally, the minimum initial investment is within $5000 and net assets are above $50 million.
We expect these funds to outperform 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 success of the fund.
Matthews China Investor (MCHFX - Free Report) seeks to achieve its objective by investing a major portion of its net assets, which include borrowings for investment purposes, in common and preferred stocks of companies in China.
This China - Equity product has a history of positive total returns for over 10 years. Specifically, the fund has one-year annualized returns of 50.6%. MCHFX has an annual expense ratio of 1.18%, while the category average is 1.80%.
Matthews Asia Innovators Investor (MATFX - Free Report) invests a large chunk of its assets in preferred and common stocks of Asian companies, which are expected to be key innovators in business models, processes, services, products, use of technology and management. MATFX seeks capital growth over the long haul.
This Sector - Tech product has a history of positive total returns for over 10 years. Specifically, the fund has one-year annualized returns of 41.8%. MATFX has an annual expense ratio of 1.24% versus the category average of 1.44%.
VanEck Emerging Markets Y (EMRYX - Free Report) invests a bulk of its assets in securities of companies which are based in emerging market countries. EMRYX seeks growth of capital for the long run by focusing primarily on emerging markets.
This Non US - Equity product has a history of positive total returns for over 10 years. Specifically, the fund has one-year annualized returns of 43.6%. EMRYX has an annual expense ratio of 1.10%, compared with the category average of 1.40%.
Fidelity Select Technology Portfolio (FSPTX - Free Report) invests a large chunk of assets in common stocks of companies primarily involved in production, development and sale of products used for technological advancement. The fund invests in both U.S. and non-U.S. companies.
This Sector - Tech product has a history of positive total returns for over 10 years. Specifically, the fund has one-year annualized returns of 40.7%. FSPTX has an annual expense ratio of 0.76%, below the category average of 1.41%.
Goldman Sachs Emerging Markets Equity Investor (GIRMX - Free Report) invests a substantial part of its assets in equity securities of emerging market countries. The fund invests in fixed income securities of companies based in emerging countries and equity and fixed income securities of companies in developed countries.
This Non US - Equity product has a history of positive total returns for over 10 years. Specifically, the fund has one-year annualized returns of 38%. GIRMX has an annual expense ratio of 1.31% versus the category average of 1.40%.
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