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Wall Street Post Worst Thanksgiving in 7 Years: 5 Low-Risk Funds
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All the three key U.S. indexes closed in the red for second straight week on Nov 23, following continued decline in oil prices. In fact, the weekly decline for the Dow, the S&P 500 and the Nasdaq was more than 3.5%.
Per the Dow Jones Market Data, the three indexes registered their worst Thanksgiving week since 2011. Amid this turmoil, mutual funds that bear a lower level of risk and at the same time offer promising returns might be prudent investment options.
Why Invest inLow-Risk Funds and How to Identify Those Funds?
Oil prices fell on Nov 23 following rising crude supply concerns ahead of OPEC members meeting on Dec 6. WTI oil prices fell 8.4% to $50.42 per barrel, posting its biggest decline since Jul 6, 2015 and reaching at its lowest level since Oct 9, 2017, per the Dow Jones Market Data. Also, Brent crude prices stumbled 8% to $58.80 a barrel.
Amid such high levels of uncertainty, it will be prudent to pick low-risk mutual funds. Before selecting funds, it is important to identify appropriate indicators that can effectively measure the risk level of a fund. This is why we have used Sharpe ratio to screen low-risk mutual funds. Sharpe ratio generally measures a fund’s average return relative to the level of volatility experienced by the same.
Further, Sharpe ratio indicates how much extra returns one can derive from a portfolio by taking on additional risk. This means that the higher the Sharpe ratio, the more attractive the fund will be among risk-averse investors. Now, most investors believe that mutual funds with a Sharpe ratio higher than 1 are lucrative. (Read: 4 Top-Ranked Mutual Funds with a Good Sharpe Ratio)
5 Best Low-Risk Funds on Focus
In this context, we have selected five mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) and have a three-year Sharpe ratio greater than 1. The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
These funds also have encouraging three-year annualized returns and minimum initial investment within $5000. Also, each of these funds has a low expense ratio.
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.
Putnam Short Duration Income Y (PSDYX - Free Report) seeks a high level of income, which Putnam Investment Management, LLC believes is constant with maintenance of liquidity and preservation of capital. PSDYX maintains a diverse portfolio by investing in fixed income securities that include investment-grade money market instruments that have a short maturity period.
PSDYX carries an expense ratio of 0.30% compared with the category average of 0.53%. Moreover, PSDYX requires a minimal initial investment of $0. The fund has three-year annualized returns of 1.5%.
Further, Joanne Driscoll is one of the fund managers of PSDYX since 2011. PSDYX has a Sharpe ratio of 2.32 for the last three years.
BBH Limited Duration N (BBBMX - Free Report) attains its investment goals by maintaining a diversified portfolio of strong performing fixed income securities. BBBMX invests in notes and bonds issued by U.S. governments and its agencies as well as by those issued by U.S. and non-U.S. companies and financial organizations.
BBBMX carries an expense ratio of 0.35% compared with the category average of 0.53%. Moreover, BBBMX requires a minimal initial investment of $5,000. The fund has three-year annualized returns of 2.2%.
Further, Andrew P. Hofer is one of the fund managers of BBBMX since 2011. BBBMX has a Sharpe ratio of 2.26 for the last three years.
T. Rowe Price Ultra Short-Term Bond (TRBUX - Free Report) maintains a diversified portfolio by investing in bonds and other related securities that are rated investment-grade. TRBUX seeks maximization of income by investing mainly in investment-grade government and corporate securities that have a lower maturity period.
TRBUX carries an expense ratio of 0.35% compared with the category average of 0.53%. Moreover, TRBUX requires a minimal initial investment of $2,500. The fund has three-year annualized returns of 1.8%.
Further, Joseph K. Lynagh is the fund manager of TRBUX since 2012. TRBUX has a Sharpe ratio of 2.13 for the last three years.
BlackRock Allocation Target Shares Series A (BATAX - Free Report) invests mainly in residential, commercial and mortgage-backed securities, and asset-backed securities that are issued by the U.S. government and its different agencies. BATAX seeks maximization of income and preservation of capital.
BATAX carries an expense ratio of 0.01% compared with the category average of 0.74%. Moreover, BATAX requires minimal initial investment of $0. The fund has three-year annualized returns of 6%.
Further, Samir Lakhani is one of the fund managers of BATAX since 2015. BATAX has a Sharpe ratio of 2.13 for the last three years.
Colorado BondShares A Tax-Exempt (HICOX - Free Report) seeks returns, which are exempted from both Colorado state and federal income taxes. The fund invests heavily in tax-exempted securities, including bonds and notes. It may also invest in tax-free municipal leases issued by public authorities and political subdivisions under the State of Colorado.
HICOX carries an expense ratio of 0.61% compared with the category average of 0.88%. Moreover, HICOX requires minimal initial investment of $500. The fund has three-year annualized returns of 4.6%.
Further, Fred R. Kelly is the fund manager of HICOX since 1990. HICOX has a Sharpe ratio of 2.01 for the last three years.
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Wall Street Post Worst Thanksgiving in 7 Years: 5 Low-Risk Funds
All the three key U.S. indexes closed in the red for second straight week on Nov 23, following continued decline in oil prices. In fact, the weekly decline for the Dow, the S&P 500 and the Nasdaq was more than 3.5%.
Per the Dow Jones Market Data, the three indexes registered their worst Thanksgiving week since 2011. Amid this turmoil, mutual funds that bear a lower level of risk and at the same time offer promising returns might be prudent investment options.
Why Invest inLow-Risk Funds and How to Identify Those Funds?
Oil prices fell on Nov 23 following rising crude supply concerns ahead of OPEC members meeting on Dec 6. WTI oil prices fell 8.4% to $50.42 per barrel, posting its biggest decline since Jul 6, 2015 and reaching at its lowest level since Oct 9, 2017, per the Dow Jones Market Data. Also, Brent crude prices stumbled 8% to $58.80 a barrel.
Amid such high levels of uncertainty, it will be prudent to pick low-risk mutual funds. Before selecting funds, it is important to identify appropriate indicators that can effectively measure the risk level of a fund. This is why we have used Sharpe ratio to screen low-risk mutual funds. Sharpe ratio generally measures a fund’s average return relative to the level of volatility experienced by the same.
Further, Sharpe ratio indicates how much extra returns one can derive from a portfolio by taking on additional risk. This means that the higher the Sharpe ratio, the more attractive the fund will be among risk-averse investors. Now, most investors believe that mutual funds with a Sharpe ratio higher than 1 are lucrative. (Read: 4 Top-Ranked Mutual Funds with a Good Sharpe Ratio)
5 Best Low-Risk Funds on Focus
In this context, we have selected five mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) and have a three-year Sharpe ratio greater than 1. The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
These funds also have encouraging three-year annualized returns and minimum initial investment within $5000. Also, each of these funds has a low expense ratio.
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.
Putnam Short Duration Income Y (PSDYX - Free Report) seeks a high level of income, which Putnam Investment Management, LLC believes is constant with maintenance of liquidity and preservation of capital. PSDYX maintains a diverse portfolio by investing in fixed income securities that include investment-grade money market instruments that have a short maturity period.
PSDYX carries an expense ratio of 0.30% compared with the category average of 0.53%. Moreover, PSDYX requires a minimal initial investment of $0. The fund has three-year annualized returns of 1.5%.
Further, Joanne Driscoll is one of the fund managers of PSDYX since 2011. PSDYX has a Sharpe ratio of 2.32 for the last three years.
BBH Limited Duration N (BBBMX - Free Report) attains its investment goals by maintaining a diversified portfolio of strong performing fixed income securities. BBBMX invests in notes and bonds issued by U.S. governments and its agencies as well as by those issued by U.S. and non-U.S. companies and financial organizations.
BBBMX carries an expense ratio of 0.35% compared with the category average of 0.53%. Moreover, BBBMX requires a minimal initial investment of $5,000. The fund has three-year annualized returns of 2.2%.
Further, Andrew P. Hofer is one of the fund managers of BBBMX since 2011. BBBMX has a Sharpe ratio of 2.26 for the last three years.
T. Rowe Price Ultra Short-Term Bond (TRBUX - Free Report) maintains a diversified portfolio by investing in bonds and other related securities that are rated investment-grade. TRBUX seeks maximization of income by investing mainly in investment-grade government and corporate securities that have a lower maturity period.
TRBUX carries an expense ratio of 0.35% compared with the category average of 0.53%. Moreover, TRBUX requires a minimal initial investment of $2,500. The fund has three-year annualized returns of 1.8%.
Further, Joseph K. Lynagh is the fund manager of TRBUX since 2012. TRBUX has a Sharpe ratio of 2.13 for the last three years.
BlackRock Allocation Target Shares Series A (BATAX - Free Report) invests mainly in residential, commercial and mortgage-backed securities, and asset-backed securities that are issued by the U.S. government and its different agencies. BATAX seeks maximization of income and preservation of capital.
BATAX carries an expense ratio of 0.01% compared with the category average of 0.74%. Moreover, BATAX requires minimal initial investment of $0. The fund has three-year annualized returns of 6%.
Further, Samir Lakhani is one of the fund managers of BATAX since 2015. BATAX has a Sharpe ratio of 2.13 for the last three years.
Colorado BondShares A Tax-Exempt (HICOX - Free Report) seeks returns, which are exempted from both Colorado state and federal income taxes. The fund invests heavily in tax-exempted securities, including bonds and notes. It may also invest in tax-free municipal leases issued by public authorities and political subdivisions under the State of Colorado.
HICOX carries an expense ratio of 0.61% compared with the category average of 0.88%. Moreover, HICOX requires minimal initial investment of $500. The fund has three-year annualized returns of 4.6%.
Further, Fred R. Kelly is the fund manager of HICOX since 1990. HICOX has a Sharpe ratio of 2.01 for the last three years.
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 >>