The choice of which mutual fund to invest in is determined by
several parameters. These include the assets under management, the
manner in which these assets are allocated and the profile of the
fund manager. The fund manager's profile reveals much about how the
fund could be managed, since past track record reflects the
probable management style.
The Expense Ratio
One of the most important parameters used while selecting a fund is
the expense ratio. This parameter is calculated by dividing
operating expenses by the assets under management. These expenses
include operating and administrative costs and 12 b-1 fees. The
largest portion of these expenses is attributable to the fees paid
to the fund managers or investment advisors.
The daily net asset value of a fund is determined after deducting
such expenses. Costs incurred while buying and selling securities
for the fund's portfolio as well as sales charges are not part of
the expense ratio. Lower index ratios are of particular
significance in case of index funds, which are passively managed,
as well as debt funds, since returns are much lower than their
The quantum of assets under management is an important factor when
determining the expense ratio. If the amount assets of a mutual
fund are small, the expense ratio is higher since expenses have to
be met from a restricted asset base. On the other hand, if the
asset base is larger, the expense ratio declines since expenses can
be met from a higher quantum of assets.
Below we are presenting three mutual funds, each of which have a
low expense ratio and have high returns, as well as a Zacks
Rank #1(Strong Buy).
Mutual Fund Picks
DFA US Large Cap Value III
Launched in February 1995, this fund has an expense ratio of 0.14%
and net assets of $2.45 billion. It is a feeder fund and invests
all its assets in the DFA International Value Series, the master
fund. The International Value Portfolio focusses on purchasing
securities issued by foreign large companies from mature markets,
which the fund advisor believes are value stocks.
The mutual fund holds 238 securities in all. Its top 10 holdings
make up 32.07% of its assets. Its top 3 holdings are
Bank of America Corporation
(T). The fund returned 30.45% over the last one year period and has
a Zacks Rank #1(Strong Buy).
Vanguard Health Care Index
This is fund has also has an expense ratio of 0.14% and net assets
of $2.16 billion. Launched in February 2004, the fund seeks to
mimic the performance of the MSCI US Investable Market Index
(IMI)/Health Care 25/50. The index consists of domestic companies
of all sizes from the healthcare sector. It is a non-diversified
This fund holds a total of 294 securities. It is concentrated
around its top 10 holdings, which account for 47.56% of its assets.
Its top three assets are
Johnson & Johnson
Merck & Co. Inc.
(MRK). The fund returned 29.95 % over the last one year period and
has a Zacks Rank #1(Strong Buy).
Emerald Banking and Finance A
Launched in February 1997, this fund is a much smaller fund with
net assets of around $71 million. The fund has an impressive
expense ratio of only 0.01%. It invests the lion's share of its
assets in stocks issues by banking and financial services
companies. It focusses on investing in relatively smaller companies
whose market cap is lower than $1.5 billion.
The fund is widely diversified and has a total number of 119
assets. The asset it is most invested in is
Bank of the Ozarks, Inc.
(OZRK). which makes up 4.09% of its assets. The next two,
Independent Bank Group, Inc.
SVB Financial Group
(SIVB), together make up 4.79% of its assets. The fund returned
26.27% over the last one year period and has a Zacks Rank #1(Strong
Funds with a lower expense ratio provide relatively higher returns
because they manage their costs better. This is why these mutual
funds would make excellent additions to your portfolio.
View All Zacks #1 Ranked Mutual Funds
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