The U.S. mutual fund industry remains the global leader and the recent trend suggests further upsurge. According to the latest data from Investment Company Institute (ICI), US mutual funds had total assets of $15.23 trillion as of February.
At the end of third quarter 2013, ICI calculated the global mutual fund assets to have hit an all-time high. It increased 5.2% to $28.87 trillion, of which the US accounted for 57%. Global net cash flow to all funds was $208 billion in the quarter, almost a sharp 81% jump from $115 billion in the preceding quarter.
With the world’s largest mutual fund industry showing strength, investors need to make prudent choices now. There are several measures for picking a particular mutual fund, but we will suggest investors to consider funds that have large assets and carry a Zacks Mutual Fund Rank #1.
Mutual Funds as Alternative Investment
Mutual funds are great options for investors looking for relatively less risky way to earn at least more than what fixed income instruments offer. Money from individuals and even organizations are invested in stocks, bonds, or other assets covering diverse industries globally.
One of the benefits of mutual funds is that it allows a small investor to invest in a basket of securities at one go. Investors need not worry about investing a large chunk in securities separately. Moreover, these are less risky than any individual asset class as underperformance of a security gets mitigated by outperformance of others in the portfolio. In addition to the asset diversification, mutual funds also provide liquidity, economies of scale and are professionally managed.
However, it is not always easy for individual investors to decide on which mutual funds to buy. Investors may be deceived to believe how a fund features in the top 100 list. Technical jargons used for marketing strategies can often mislead investors – making them believe how wonderfully the fund has performed. The truth of a particular fund may be something else, which many investors may find daunting to unearth.
A look at a Standard & Poor’s report shows how a large chunk of funds had underperformed last year. The year-end 2013 S&P Indices Versus Active (:SPIVA) scorecard notes that 55.8% of large-cap managers underperformed the benchmarks in 12 months ending Dec 31, 2013. Also, most of the active managers of domestic equity sectors failed to deliver returns higher than their benchmarks.
5 Popular Funds
The choice of which mutual fund to invest in is determined by several parameters. Among other factors, the assets under management, the manner in which these assets are allocated, and the profile of the fund managers are crucial.
Here we will focus on funds with the biggest assets. However, as bigger is not necessarily the better, performance of an index fund is not necessarily guided by total net assets. Thus, apart from the net assets let us look at mutual funds that sport a Zacks Mutual Fund Rank #1. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund.
American Funds Capital Income Builder A (CAIBX) seeks increasing income over years and capital appreciation is the secondary aim. It invests 90% of its assets in a variety of income-producing securities. The fund may also invest in foreign common stocks or bonds.
The fund had net assets of $65,602.00 million as of Feb 2014. The fund’s expense ratio is 0.61% as compared to category average of 1.08%. The fund has one, three and five year annualized returns of 10.23%, 9.18% and 13.30%, respectively.
American Funds Growth Fund of America A (AGTHX) invests mostly in companies that have the potential to offer strong capital growth. The fund may invest in foreign securities. Fund assets are managed by applying a multiple portfolio counselors system. The system divides fund portfolio into various segments, which are managed by individual counselors.
The fund had net assets of $62,602.00 million as of Feb 2014. The fund’s expense ratio is 0.70% as compared to category average of 1.22%. The fund has one, three and five year annualized returns of 24.36%, 13.79% and 18.37%, respectively.
T. Rowe Price Growth Stock (PRGFX) seeks capital appreciation over the long term. It invests a lion’s share in diversified large-cap growth companies. Investments are not restricted to domestic companies only. The fund may sell securities to restrict losses, secure gains or reinvest the assets in better options.
The fund had net assets of $37,244.0 million as of Feb 2014. The fund’s expense ratio is 0.69% as compared to category average of 1.22%. The fund has one, three and five year annualized returns of 27.85%, 15.72% and 21.14%, respectively.
Dodge & Cox Income (DODIX) seeks high, stable income along with preservation of capital over long term. A minimum of 65% of its assets are invested in securities that are rated A by rating agencies like Standard & Poor's Ratings Group (S&P), Fitch Ratings (Fitch), or Moody's Investors Service (Moody's), or by nationally recognized statistical rating organization (:NRSRO). The fund also invests in a range of high-quality bonds and interest rate derivatives.
The fund had net assets of $24,654.0 million as of Feb 2014. The fund’s expense ratio is 0.43% as compared to category average of 0.89%. The fund has one, three and five year annualized returns of 2.24%, 4.70% and 7.62%, respectively.
Fidelity Growth Company (FDGRX) invests in domestic as well as foreign growth companies. These companies are believed to have the higher than average growth prospective. The fund looks into financial condition, industry position of an issuer and also the market and economic conditions before investing.
The fund had net assets of $23,380.94 million as of Feb 2014. The fund’s expense ratio is 0.83% as compared to category average of 1.22%. The fund has one, three and five year annualized returns of 29.73%, 16.25% and 22.72%, respectively.
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. Learn more about the Zacks Mutual Fund Rank.
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Read the analyst report on CAIBX
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