The Federal Reserve on Wednesday hiked the overnight interest rate yet again by a quarter percentage point after a pause in June. Currently, the interest rate is in the range of 5.25-5.5%, the highest since 2001. However, Fed Chairman Jerome Powell has hinted at a further rate hike this year to tackle above-target inflation.
Major indices like the S&P 500, the Nasdaq and the Dow have posted positive returns of 18.2%, 34.2% and 6.4%, respectively, so far this year.
Inflation rates for the month of June are encouraging as the Consumer Price Index rose by 3% on a 12-month basis compared to 9.1% a year ago, easing the burden on Americans. Despite high interest rates and the fear of recession, the second-quarter GDP growth came in at 2.4% annually.
The U.S. labor market remained resilientas the payroll for June climbed 209,000 while the unemployment rate fell to 3.6%, and average hourly wages rose 4.4%. Personal disposable income also increased 5.2% in the second quarter. With additional disposable income available in the pockets of average Americans, one can opt for no-load mutual funds. These passively managed funds don’t have any commission fees, or any other charges for buying and selling that are generally associated with actively managed funds.
The sales fee — referred to as a “front-end load,” which is charged upon purchasing shares or back-end load, is absent in such funds because the shares are distributed directly by the investment company, instead of any third-party involvement like broker, advisor, or another type of professional. Even a few additional basis points saved in fees can boost the overall return by minimizing expenses. However, charges like the fund’s expense ratio, 12b-1 fees for marketing, distribution, and service, redemption fees, exchange fees, and account fees are commonly charged even if there is no load.
The load charges are generally within the range of 0-6%. To understand the math, let’s assume an investor wants to invest $5000 in a mutual fund that has a 6% entry and exit load. Then, $4700 [$5000-$300 (6% of $5000)] is left with the mutual fund house to invest. Now, let’s assume the fund has given a 15% return over the year. So, the current value of the portfolio is $5405 [$4700+ $705 (15% of $4700)]. Now, when an exit load of 5% is applied, the investor is left with $5080.7 [$5405-$324.3 (6% of $5405)].
According to the above hypothesis, the return earned by the investor with front and back load is 8.1%, whereas he could have enjoyed a much higher return without load.
Wise investors looking for higher returns can consider no-load mutual funds as it has a low expense ratio, which can translate into higher returns along with other factors like the fund’s performance history, investment style, risk tolerance, etc.
We have thus selected three no-load mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, and carry a low expense ratio. Notably, mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges mostly associated with stock purchases.
Fidelity Select Semiconductors Portfolio FSELX invests most of its net assets in common stocks of domestic and foreign companies that areprincipally engaged in the design, manufacture, or sale of semiconductors and semiconductor equipment. FSELX chooses to invest in stocks based on fundamental analysis factors such as each issuer’s financial condition and industry position, and market and economic conditions.
Adam Benjamin has been the lead manager of FSELX since Mar 15, 2020. Most of the fund’s exposure is in companies like NVIDIA (24.6%), NXP Semiconductors (9.2%) and On Semiconductors (8.2%) as of 2/28/2023.
FSELX’s three-year and five-year annualized returns are nearly 34.1% and 28.0%, respectively. FSELX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.69%, which is less than the category average of 1.05%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
BNY Mellon Natural Resources Fund DLDRX invests most of its assets along with borrowings, if any, in common stocks of domestic and foreign natural resources and natural resources-related sectors companies, irrespective of the market capitalization. DLDRX also invests in emerging markets securities with similar economic characteristics.
Albert Chu has been the lead manager of DLDRX since Oct 29, 2019, and most of the fund’s exposure is in companies like Freeport – Mcmoran (4.9%), Occidental Petroleum (4.6%) and Hess (4.6%) as of 3/31/2023.
DLDRX’s three-year and five-year annualized returns are 33.5% and 12.5%, respectively. DLDRX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.89%, which is less than the category average of 1.11%.
Invesco Small Cap Value VSMIX invests most of its assets along with borrowings, if any, in common stocks of small-capitalization companies, and in derivatives instruments with similar economic characteristics. VSMIX advisors choose to invest in companies, which according to them, are undervalued.
Jonathan Edwards has been the lead manager of VSMIX since Jun 25, 2010, and most of the fund’s exposure is in companies like Northern Oil & Gas (2.6%), Vertiv Holdings (2.4%) and Aecom (2.3%) as of 1/31/2023.
VSMIX’s three-year and five-year annualized returns are 32.1% and 11.4%, respectively. VSMIX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.83% compared to the category average of 1.16%.
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