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3 Dividend Mutual Funds to Battle Volatile Markets

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Over the past few weeks, certain headwinds have emerged, adding to market volatility amid the pandemic. Major U.S. indexes, i.e., the Dow Jones, Nasdaq Composite and the broader S&P 500 have witnessed severe ups and downs since the novel coronavirus hit the United States earlier this year. But rising tensions amid the United States and China, a possible “decoupling” of the two countries ahead and a strong spike in the number of coronavirus cases in the country threaten to stretch this volatility.

Coronavirus Concerns Persist

The number of coronavirus cases continued to rise globally, with the number of active cases in the country hitting as many as 2,388,225 as of Jun 22. The cases spiked after the economy across all 50 states reopened around April-end. But despite the rising infections, some state and local officials are working toward lifting restrictions and returning to a state of normalcy.

As many as 29 states and U.S. territories reported an increase on Jun 22 in their rolling average of newly reported cases. Nine states reported record-average highs. In addition, the World Health Organization on Monday reported its largest 24-hour uptick in COVID-19 cases worldwide since the pandemic started.

Given that a vaccine is at least 12-18 months away, according to Anthony Fauci, director of the National Institute of Allergy and Infectious Disease, one may expect uncertainty and volatility to keep rattling the financial markets in the near future.

Air of Confusion Around U.S.-China Trade Deal

Coming to rising tensions between the United States and China, new developments have been all but optimistic.

U.S. Treasury Secretary Steven Mnuchin, in an interview with Fox News on Jun 22, said that the Trump Administration could consider "decoupling" itself from China. Decoupling, which is the process of detaching two countries' economies and supply chains, could mean that the relationship between U.S. and China could undergo major change in the days ahead.

In addition, on Monday night, White House trade adviser Peter Navarro said in an interview to Fox news that the trade deal between the two countries was over, resulting in financial markets to encounter volatility briefly before he and President Donald Trump controlled the damage. On Jun 23, Trump took to Twitter to announce that the trade deal was in fact, “fully intact.” The President further added, “Hopefully they will continue to live up to the terms of the Agreement!”

The comments in rapid succession have certainly raised doubts over the trade deal, the first phase of which was signed in January, before the pandemic hit the country and abroad. Major U.S. benchmark indexes ended higher at the end of Monday’s trading session though.

This is why dividend mutual funds are ideal instruments for investment in the current scenario. The income-generating nature of these funds ensures steady flow of income for investors, which can come quite handy in uncertain times such as this.

3 Funds to Buy

We have, therefore, selected three mutual funds that offer decent dividends to investors. All these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). In addition, the minimum initial investment for these funds 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).

Fidelity Dividend Growth Fund (FDGFX - Free Report) aims for capital appreciation. The fund invests the majority of its assets in equity securities of companies. FDGFX mostly invests in companies that pay dividends or have the potential to pay the same in the future. The fund mostly invests in common stocks of companies.

This Zacks sector – Large Cap Blend 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.

FDGFX carries a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.50%, which is below the category average of 0.99%. It has returned 3.2% over three years. The fund has no minimum initial investment.

PIMCO High Yield Spectrum Fund Class A (PHSAX - Free Report) aims for maximum total return that is consistent with ideal investment management. The fund invests the majority of its assets in high yield investments. These may be convertibles, warrants, forwards or derivatives such as swap agreements.

This Zacks sector – High Yield-Bonds 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.

PHSAX carries a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.98%, which is below the category average of 1.02%. It has returned 2% over three years. The fund has a minimum initial investment of $1000.

Fidelity High Income Fund (SPHIX - Free Report) aims for a high level of current income. The fund invests the majority of its assets in income-producing debt securities, preferred stocks and convertible securities, with an emphasis on lower-quality debt securities. SPHIX invests in securities of U.S. and non-U.S. issuers alike.

This Zacks sector – High Yield-Bonds 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.

SPHIX carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 0.70%, which is below the category average of 1.02%. It has returned 2.8% over three years. The fund has no minimum initial investment.

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