Credit: Shutterstock photoThe annual list of 25 favorite no-load mutual funds from Kiplinger is out, featuring a good number of funds from Fidelity , Vanguard and T. Rowe Price. These fund families have a total of 10 mutual funds in the favorite 25 list, with 4 funds from Fidelity and 3 each from the other two. Kiplinger says it has picked funds managed by seasoned managers who have been able to withstand many market concerns. The funds also carry below average fees.
Kiplinger has categorized the 25 funds under Large-Cap Stock Funds , Small- and Midsize-Cap Stock Funds, International Stock Funds, Specialized/Commodity/Go-Anywhere Funds and Bond Funds.
Before we discuss the funds, let's look into what sales load is.
Sales Load
The cost of owning funds is always painful as it eats into capital gains. Investors in mutual funds incur two primary kinds of expenses and fees: fund expenses and loads. Whereas fund expenses are paid indirectly from fund assets throughout the year, sales loads are one-time fees that investors pay either at the time of purchase or when units are redeemed.
Sales Load are usually one-time charges or commissions that investors need to pay either at the time of purchasing a fund or selling. Thus, it can either be front-end load or back-end loan charges. Front-end load charges are commissions paid at the time of initial purchase. It is usually deducted from invested amount, thus lowering the actual investment value. Back-end loads are paid at the time of offloading mutual funds. It is also known as contingent deferred sales charge or load.
Impact of Sales Load on Investment Return
It is obvious that sales loads will have an inversely proportionate impact on the net return. The chart below will show what an initial investment of $10,000 will return in 1, 3, 5, 10 years considering annual return of 10% with front-end sales charge of 0%, 2.5%, 5% and 7.5%, respectively. We have not considered any
operating expenses or other fees. The ending value includes opportunity costs.
Large, Mid & Small-Cap Funds
Interestingly now, investors are shifting their preference toward low-cost funds. About 95% of flows have been toward the low-cost group of funds. The asset-weighted expense ratio dropped 0.76% in last five years to 0.64% in 2014. (Read: Say Goodbye to High-Cost Mutual Funds )
In this article, we will look into Kiplinger's list of funds from the Large, Mid & Small-Cap Stock Funds categories.
Investors get to choose from Large cap, Mid cap or Small cap funds. This choice can be made depending on what suits the investor the most. Market capitalization in the case of funds does not reflect the size of the fund's assets. Instead, it is an indication on what type of securities the fund invests in.
Large-Cap Funds: A large-cap fund will invest in companies having market cap above $10 billion. These funds provide the least amount of risk. Most often, the large cap funds tend to duplicate the benchmarks - like the S&P 500. These funds are ideal for investors with a long-term investment timeline.
Mid-Cap Funds: These funds invest in companies generally having market capitalization within $2-$10 billion. These funds are riskier than large-cap funds but are less risky than small-cap funds. Mid-cap funds are not very susceptible to volatility in broader markets. These are ideal investment options for investors looking for high return potential that comes with lower risk than small-cap funds.
Small-Cap Funds: Small-cap funds generally invest in companies having market cap lower than $2 billion. The companies, smaller in size, offer growth potential and their market capitalization may increase subsequently. Small-cap funds are believed to have higher growth potential. Small-cap funds are a good choice for investors seeking diversification across different sectors and companies. Investors with a high risk appetite should invest in these funds.
Keep reading our Mutual Fund Commentary section for upcoming article on no-load funds from other categories.
Kiplinger's List of Funds
Of these funds, only Mairs & Power Growth Investor (MPGFX) holds a Zacks Mutual Fund Rank #1 (Strong Buy) . However, Fidelity New Millennium (FMILX) carries a Zacks Mutual Fund Rank #5 (Strong Sell), while Dodge & Cox Stock (DODGX), T. Rowe Price Value (TRVLX) and Vanguard Dividend Growth Inv (VDIGX) all carry a Zacks Mutual Fund Rank #4 (Sell).
None of these funds have managed to beat the year-to-date and 1-year return of Large Growth funds. Large Blend funds' 1-year return of 8.4% is what these funds have mostly matched.
Now, let's look at the list of Small- and Midsize-Company Stock Funds.
Here, Homestead Small Company Stock (HSCSX) holds a Zacks Mutual Fund Rank #1, while Davenport Equity Opportunities (DEOPX) and T. Rowe Price Diversified Small Cap Growth (PRDSX) hold a Zacks Mutual Fund Rank #2. Separately, Akre Focus Retail (AKREX) and Vanguard Selected Value Inv (VASVX) carry a Zacks Mutual Fund Rank #5 and Zacks Mutual Fund Rank #4, respectively. Meanwhile, Parnassus Mid-Cap (PARMX) and T. Rowe Price Small-Cap Value (PRSVX) carry a Zacks Mutual Fund Rank #3 (Hold).
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Pick the best mutual funds with the Zacks Rank.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Get Your Free (MPGFX): Fund Analysis Report
Get Your Free (DODGX): Fund Analysis Report
Get Your Free (TRVLX): Fund Analysis Report
Get Your Free (VDIGX): Fund Analysis Report
Get Your Free (HSCSX): Fund Analysis Report
Get Your Free (DEOPX): Fund Analysis Report
Get Your Free (PRDSX): Fund Analysis Report
Get Your Free (PRSVX): Fund Analysis Report
Get Your Free (VASVX): Fund Analysis Report
Get Your Free (PARMX): Fund Analysis Report
To read this article on Zacks.com click here.
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.
