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3 Dividend-Yielding Funds to Sidestep Global Economic Slowdown

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Wall Street took another hit on Jan 3 as leading indexes saw losses on weaker-than-expected manufacturing data and fears of a global economic slowdown.

Investors’ fears over the impact of the U.S.-China trade war on prominent American companies were confirmed by Apple’s quarterly revenue cut for the first time in more than 15 years. This was the chief reason behind the stock market dip.

Meanwhile, investors hope for a less-hawkish Fed report following strong December jobs data. But given the equity market volatility and repetitive losses in the past few weeks, it might be prudent to invest in a couple of dividend-yielding funds.

Global Growth Slowdown Worries

The ripples caused by the trade war tussle and intensifying macroeconomic issues in the equity markets in 2018 have not subsided. The International Monetary Fund expects global growth in 2019 at 3.7%, same as the predictions for 2018 and 2017. This is however lower than the fund’s 3.9% global growth expectation issued eight months ago.

In addition, IMF expects U.S. growth to decelerate to 2.5% in 2019 from 2.9% in 2018. Growth projections for China, India, Brazil, South Africa and Mexico have been downgraded as well.

IMF’s forecast has been echoed by Federal Reserve, which expects U.S. economic expansion to slow down to 2.3% in 2019. This is a drastic downgrade from last year’s second and third-quarter U.S. economy growth of 4.2% and 3.4%, respectively.

In addition, an Institute for Supply Management report stated that U.S. manufacturing sector activity grew at a much slower pace in December. The ISM manufacturing index nose-dived to its lowest level since November 2016, from 59.3 in November 2018 to 57.9 in December 2018. Declining manufacturing activity indicates a lower consumer demand.

Trade War Finally Hits Home

As the United States and China struggle to find middle ground on tariffs and fair trade, major U.S. companies relying on the Chinese market have begun to feel the effect of an economic slowdown in China.

Apple’s shares fell as much as 10% in Jan 3 trading after it cut its revenue outlook, blaming trade war for slowing economic growth in China.

Why Invest in Dividend-Yielding Funds Now?

When faced with a turbulent market, dividend-yielding mutual funds might prove profitable because these are less volatile. These funds put a majority of their net assets in dividend-paying companies which guarantee stable and high returns.

Most dividend-yielding funds pay investors on an annualized basis, generating regular income for investors.

3 Mutual Funds to Buy

Given the rampant projections of an economic slowdown, it would be best to add a few dividend-yielding mutual funds to your portfolio.

We have selected funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three-year returns. Additionally, the minimum initial investment is within $5,000.

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 future success of the fund.

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).

Vanguard Dividend Appreciation Index Fund Inverstor (VDAIX - Free Report) seeks capital growth by investing in companies that have registered high dividend yields over time. The fund follows an indexing investment approach by following the performance of Nasdaq US Dividend Achievers Select Index. The fund carries a Zacks Mutual Fund Rank #1.

This Zacks sector – Large Cap Blend product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

VDAIX has an annual expense ratio of 0.15%, which is below the category average of 0.96%. The fund has a three and five-year return of 13.28% and 9.99%, respectively. VDAIX has a year-to-date dividend yield of 1.79%.

Vanguard High Dividend Yield Index Fund Investor (VHDYX - Free Report) seeks capital appreciation by investing in companies that generate high dividend yields. The fund does so by tracking the performance of a benchmark index that follows the returns of such companies. VHDYX follows an indexing investment approach by following the performance of FTSE High Dividend Yield Index. The fund carries a Zacks Mutual Fund Rank #2.

This Zacks sector – Large Cap Value product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

VHDYX has an annual expense ratio of 0.15%, which is below the category average of 1%. The fund has a three and five-year return of 11.54% and 10.22%, respectively. VHDYX has a year-to-date dividend yield of 2.88%.

Fidelity Dividend Growth Fund (FDGFX - Free Report) seeks capital growth by investing 80% of its net assets in securities of companies that pay dividends. The fund carries a Zacks Mutual Fund Rank #1.

This Zacks sector – Large Cap Blend product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FDGFX has an annual expense ratio of 0.52%, which is below the category average of 0.96%. The fund has a three and five-year return of 9.72% and 8.71%, respectively. FDGFX has a year-to-date dividend yield of 1.71%.

Fidelity Advisor Series I Fidelity Advisor Dividend Growth Fund (FADAX - Free Report) aims capital appreciation by investing 80% of its assets in securities of companies that pay dividends or will do so in the future. The fund carries a Zacks Mutual Fund Rank #2.

This Zacks sector – Equity product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FADAX has an annual expense ratio of 0.84%, below the category average of 0.96%. The fund has a three and five-year return of 9.39% and 8.38%, respectively. FADAX has a year-to-date dividend yield of 1.24%.

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