3 Top No-Load Mutual Funds for Long-Term Gains
Major U.S. indexes have given positive returns over the past year. The Dow, the S&P 500 and the tech-heavy NASDAQ have delivered 10.3%, 20% and 36.1% returns, respectively, in the said period. A higher-than-expected Consumer Price Index (CPI) for the month December and the Federal Reserve’s interest rate decision, which is expected by the end of this month, are the key concerns for investors.
CPI, which is the most accepted gauge for inflation, increased 0.3% in December and 3.4% from a year ago, higher than the street expectation of 0.2% and 3.2%. Rising shelter costs contributed mostly to the increase. Inching inflation numbers suggest that inflation is still a concern for the U.S. economy. Notably, the economy added 216,000 jobs, the unemployment rate was 3.7%, flat month over month and the average hourly wage rate increased 0.4% in December. The above numbers suggest that the labor market is still resilient.
Although the Federal Reserve’s inflation target of 2% is far from met, investors are expecting the central bank to be less hawkish and, in the process, initiate the first overnight interest rate cut. Investors are still worried as the Fed can keep the interest rate high for longer to win the inflation battle. A higher interest rate can impact corporate performance and, thereby, stock prices.
Investors who wish to diversify their portfolio but lack the necessary expertise to manage their own funds can choose mutual funds that have performed well in the past and have no load. 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.
Sales charges — referred to as a “front-end load,” charged upon purchasing shares, or “back-end load,” charged upon the sale of shares — are absent in such funds because the shares are distributed directly by the investment company, instead of any third-party involvement like broker, advisor or any other 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$1000 in a mutual fund that has a 5% entry and exit load. Then, $950 [$1000-$50 (5% of $1000)] 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 $1092.5 [$950+ $142.5 (15% of $950)]. Now, when an exit load of 5% is applied, the investor is left with $1037.87 [$1092.5-$54.63 (5% of $1092.5)].
According to the above hypothesis, the return earned by the investor with front and back load is 3.78%, whereas he could have enjoyed a much higher return without load.
Astute investors looking for higher returns can consider no-load mutual funds as these have 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) or 2 (Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, and carry a low expense ratio compared to the category average. Notably, mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Select Energy FSENX fund invests most of its net assets in common stocks of domestic and foreign companies that areprincipally engaged in the energy field, including the conventional areas of oil, gas, electricity, and coal, and newer sources of energy such as nuclear, geothermal, oil shale, and solar power. FSENX advisors choose to invest in stocks based on fundamental analysis factors like financial condition and industry position, along with market and economic conditions.
Maurice FitzMaurice has been the lead manager of FSENX since Dec 31, 2019. Most of the fund’s exposure is in companies like Exxon Mobil (24.9%), Chevron (6.1%) and Schlumberger (4.7%) as of Aug 31, 2023.
FSENX’s three-year and five-year annualized returns are almost 36.7% and 13.7%, respectively. FSENX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.73%, which is less than the category average of 1.07%.
To see how this fund performed compared in its category and other 1, 2, and 3 Ranked Mutual Funds, please click here.
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 was to companies like NVIDIA (24.8%), NXP Semiconductors (8.4%) and ON Semiconductors (8.0%) and as of Aug 31, 2023.
FSELX‘s three-year and five-year annualized returns are nearly 23.4% and 34.8%, respectively. FSELX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.68%, which is less than the category average of 1.05%.
Bridgeway Small-Cap Value BRSVX invests most of its assets along with borrowings, if any, in small-cap value companies that are listed on the New York Stock Exchange, NYSE American, and NASDAQ. BRSVX advisors choose to invest in stocks using a statistical approach.
John N.R. Montgomery has been the lead manager of BRSVX since Oct 30, 2003, and most of the fund’s exposure is in companies like Chico’s FAS (1.5%), Hostess Brands (1.4%) and Group 1 Automotive (1.4%) as of Sep 30, 2023.
BRSVX’s three-year and five-year annualized returns are 19.8% and 12.3%, respectively. BRSVX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.86% compared to the category average of 1.16%.
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