Markets

4 Best Performing High Yield Mutual Funds of 2016

The stock market was off to a dismal start last year, with unpredictable share price movements bothering investors especially in January and February. After gaining some stability, the markets were quite a snoozer until the election. The stocks, nevertheless, wrapped up the year on an impressive note buoyed by expectations of business-friendly developments in Washington propelling growth as well as inflation.

However, of late, there have been indications of stricter trade policies from President Donald Trump's camp, which might eventually dampen sentiments. Needless to say, Trump's market-friendly policies are turning the broader market into one giant bubble, raising likelihoods of disenchantment for investors in the near term. Moreover, risky assets including stocks suffered from a serious case of "Brexit Blues," forcing investors to park their money in safe-haven assets such as bonds.

To overcome the adversities, income seeking investors should look for funds that are exposed to stocks providing juicy dividends. Dividend is mostly paid by companies that boast solid financial structure and healthy underlying fundamentals, and are unperturbed by market turbulence.

Trade Policy May Hit Stocks

Trump's press conference this month disappointed investors due to the lack of policy details. Trump had earlier promised to deregulate certain sectors, lower corporate taxes and inject fiscal stimulus measures, which were expected to drive economic growth. His promises have more or less helped the stock market gain traction over the last two months.

Meanwhile, by naming China hawk Peter Navarro as the head of a newly formed White House National Trade Council, the Trump administration has clearly indicated that the plan of imposing tax on imports is on track. Navarro along with Trump's pick for commerce secretary, Wilbur Ross, favor border adjustment tax that is also included in House Speaker Paul Ryan's "Better Way" tax-reform blueprint.

If such a tax gets implemented, economists at Deutsche Bank AG DB estimate that inflation will cross the Fed's desired target level of 2% and push the dollar up by about 15%. This in turn will result in negative earnings revision for the S&P 500 and will be a deterrent to economic growth. A stronger dollar hammers profits at U.S. multinationals as prices of goods and services escalate.

Geopolitical Tension

From a geopolitical perspective, election of Trump as U.S. president has intensified anxieties, with the outspoken, real-estate mogul planning to "greatly strengthen and expand" the country's nuclear capabilities, raising the possibility of a Cold War-era style arms race. His tweets on potentially massive changes to the U.S. policy on China also raise uncertainty for the economy. Apart from the possible Trump move, economic growth in China also remains uncertain.

The impact of the fallout of U.K from the European Union (EU), historic election in Italy and other populist movements in Europe on the broader markets is also unknown. There is possibility of a 'Nexit' - Netherlands leaving the Eurozone - as well. Opting out of the EU will benefit the Dutch in a number of ways including relaxed regulations and reduced spending on immigrants.

4 Best Dividend Mutual Funds of 2016

Due to the above-mentioned uncertainties, investing in dividend mutual funds seems to be prudent. Companies that pay consistent dividends put a ceiling on economic uncertainty. These companies have steady cash flows and are mostly financially stable and mature, which help their stock prices to increase gradually over a period of time.

We have, thus, selected four solid dividend mutual funds that have not only posted an impressive performance last year but also boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money ).

Vanguard Dividend Appreciation Index InvestorVDAIX seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that have a record of increasing dividends over time. VDAIX has given a return of 20.6% in the last one-year period. Annual expense ratio of 0.19% is lower than the category average of 1.01%. VDAIX has a Zacks Mutual Fund Rank #1.

Fidelity Dividend GrowthFDGFX invests primarily in companies that pay dividends or those that Fidelity Management & Research Company believes have the potential to pay dividends in the future. FDGFX has given a return of 17.5% in the last one year. Annual expense ratio of 0.61% is lower than the category average of 1.01%. FDGFX has a Zacks Mutual Fund Rank #1.

T. Rowe Price Dividend GrowthPRDGX invests at least 65% of its total assets in dividend-paying common stocks that have favorable prospects for increasing dividends and long-term appreciation. PRDGX has given a return of 20.6% in the last one-year period. Annual expense ratio of 0.64% is lower than the category average of 1.01%. PRDGX has a Zacks Mutual Fund Rank #2.

Fidelity Advisor Dividend Growth AFADAX invests primarily in companies that pay dividends or that the advisor believes have the potential to pay dividends in the future. It invests in domestic and foreign issuers. FADAX has provided a return of 17.02% in the last one year. Annual expense ratio of 1% is lower than the category average of 1.01%. FADAX has a Zacks Mutual Fund Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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