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4 Dividend Mutual Funds to Counter a Volatile Market

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In the current gloomy economic scenario, investors may find dividend mutual funds attractive. After all, despite the recent development in U.S.-China trade spat, which could appear as though trade tensions are easing, both countries are still a long way from a definitive trade agreement. Further, other geopolitical issues continue to mount pressure on Wall Street, making it prudent to consider dividend mutual funds.

No Immediate End to Trade Dispute

U.S.-China trade spat took a new turn last week after China allowed its currency to weaken. This was in response to President Donald Trump’s threat of imposing 10% tariffs on the remaining $300 billion worth of Chinese exports starting Sep 1.

On Aug 13, however, the U.S. Trade Representative’s office announced that it would delay tariffs on certain consumer items. These include “cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing,” per the statement. This new development takes about $152 billion worth of goods off the list.

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke with Chinese vice premier Liu He and they are expected to hold discussions again in two weeks.

However, there is still a long way to go for the trade dispute to be over and thus volatility in equity markets could continue. 

Unrest in Hong Kong, a Probable No-Deal Brexit and Argentina’s Near Financial Crisis

Protests in Hong Kong took an ugly turn on Aug 12, after demonstrations at the Hong Kong airport led to the cancellation of majority of flights. It continued on Aug 13 as well. Although the anti-government protests were largely peaceful, Beijing weighed the demonstrations as law-breaking activities and damaging to the law.

According to Chinese state-owned Global Times, the People’s Armed Police assembled in Shenzhen in a bid to handle the situation. The unrest in Hong Kong clearly affected market sentiment.

Secondly, certainty of a no-deal Brexit continue to rise as Oct 31 draws closer. Britain is set to leave the European Union on the said date if British prime minister Boris Johnson loses a confidence motion.

This could lead to Britain exiting EU minus a legal agreement that comprises issues such as trade, border policy and data. This could mean uncertainty regarding the aforementioned issues especially trade, which could push global markets into further uncertainty.

Lastly, Argentina is hovering close to a financial crisis after left-wing opponent Alberto Fernandez won primary elections last weekend. Fernandez’s landslide victory put a serious question over President Mauricio Macri’s chances of re-election.

Macri’s loss sent Argentine equity markets in frenzy, with the S&P Merval Index plummeting as much as 48% on Aug 12. Investors are afraid that if Macri isn’t back for a second term in October, the winning party could undo the progress Macri accomplished to reclaim investor trust in the country and abroad.

4 Best Fund Choices

In such a scenario, dividend mutual funds are best suited for investments since these offer steady and reliable payouts. The income-generating nature of these funds makes these ideal for turbulent times.

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

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.

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).

BlackRock High Yield Bond Fund (BHYAX - Free Report) aims to generate maximum total return. The fund invests the majority of its assets in high-yield bonds. The fund opts for a research-intensive investment process that helps investors attain high levels of income and capital growth. The fund carries a Zacks Mutual Fund Rank #1.

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

BHYAX has an annual expense ratio of 0.93%, which is below the category average of 1.01%. The fund has returned 10.9% on a year-to-date basis. BHYAX has an annualized dividend yield of 5.2% and a minimum initial investment of $1000.

The Hartford Strategic Income Fund Class A (HSNAX - Free Report) aims to offer current income and long-term total return. The fund invests most of its assets in a diversified portfolio of fixed-income securities. The fund carries a Zacks Mutual Fund Rank #1.

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

HSNAX has an annual expense ratio of 0.95%, which is below the category average of 1.03%. The fund has returned 9.2% on a year-to-date basis. HSNAX has an annualized dividend yield of 5.9% and a minimum initial investment of $2000.

TIAA-CREF High-Yield Fund Retail Class (TIYRX - Free Report) aims for total return through high current income. The fund invests the majority of its assets in debt and fixed-income securities that are lower-rated and generate high yields. The fund carries a Zacks Mutual Fund Rank #1.

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

TIYRX has an annual expense ratio of 0.63%, which is below the category average of 1.01%. The fund has returned 11.6% on a year-to-date basis. TIYRX has an annualized dividend yield of 5.2% and a minimum initial investment of $2500.

Western Asset Income Fund Class A (SDSAX - Free Report) aims for high current income. The fund invests most of its assets in a diverse portfolio of fixed-income securities. The fund aims for a minimum 35% exposure to foreign securities. The fund carries a Zacks Mutual Fund Rank #2.

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

SDSAX has an annual expense ratio of 0.99%, which is below the category average of 1.03%. The fund has returned 9.3% on a year-to-date basis. SDSAX has an annualized dividend yield of 5.5% and a minimum initial investment of $1000.

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