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4 Dividend Mutual Funds for Q2

Zacks Equity Research
Small-cap ETFs have been underperforming their larger cousins consistently this year due to margin pressure. So, be selective with these five top-ranked quality picks.

Investors who aren’t willing to partake in risks may find dividend-yielding mutual funds the right investment in the current global economic scenario. The International Monetary Fund’s (IMF) reduced global growth outlook for 2019, red flags in the Eurozone and lingering trade tensions are significant economic headwinds for the equity markets right now.

IMF’s Poor Global Growth Outlook for 2019

Earlier this month, the IMF lowered its forecast for global economic growth again for this year, citing the Federal Reserve’s tighter monetary policy and rising tensions on the trade front. The global lender also stated that Britain’s potentially disorderly exit from the European Union could also play a role in a global economic slowdown ahead.   

The IMF said it expects the world economy to grow 3.3% in 2019. This projection is lower than its earlier forecast of 3.5% global growth, which happened to be a downgrade as well.

Less Bullish Eurozone

The European Union’s economic growth is slowing significantly, which remained a prime reason for IMF’s outlook reduction for the third time in six months.

Germany, Europe’s largest economy, is still struggling to regain its economic strength since its contraction in the third quarter of 2018. The country’s declining exports, largely triggered by the U.S.-China trade war, has affected its manufacturing industry immensely.

Italy’s economic scenario is even worse. After its GDP shrank in Q3 and Q4 of 2018, the country sank into a recession. GDP for Q1 2019 shrank too. A rebound is highly unlikely anytime soon, given factors such as firm labor market rules and corruption.

Also, a potential chaotic exit on Britain’s part from EU could well cut 0.2% from this year’s global growth, the IMF said.

Trade Tensions Remain a Risk

Finally, a rather worrisome matter at present on the trade front is a possible trade war between United States and European Union. President Trump had imposed steel and aluminium tariffs on EU in May 2018, but in July both parties reached a sort of a deal to avoid a trade war. However, Trump’s recent threats have led the European Commission to consider putting $20 billion worth of U.S. imports under the tariff umbrella.

A trade conflict at this point would be a serious economic setback for both.

Given the headwinds already affecting global growth and the ones gearing up, it would be prudent to invest in dividend-yielding mutual funds. This is because organizations that pay out dividends are usually immune to economic uncertainty. These companies in general have steady cash flows and are financially stable.

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

Our Choices

We have selected four dividend paying mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5,000.

We expect these funds to outperform their peers in the future. 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 also on the likely future success of the fund.

ClearBridge Dividend Strategy Fund Class 1 LCBOX seeks to provide dividend income, dividend growth and long-term capital appreciation. The fund invests a minimum of 80% of its assets in equity securities or other investments that bear similar characteristics that offer dividends. The fund mostly invests in common stocks. LCBOX may also invest half of its assets in non-U.S. equity securities.The fund carries a Zacks Mutual Fund Rank #1.

This Zacks sector – Allocation Balanced product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

LCBOX has an annual expense ratio of 0.79%, which is below the category average of 0.94%. The fund generated three and five-year returns of 12.1% and 9.5%, respectively. LCBOX has an annualized dividend yield of 1.6% and no minimum initial investment.

DWS World Dividend Fund - Class S SCGEX seeks to provide total returns with a focus on both current income and capital appreciation. The fund invests the majority of its net assets in stocks that offer dividend. The fund’s investments mostly include common stocks issued by U.S. and non-U.S. companies. The fund may also invest in preferred stocks and other equity securities such as warrants and convertible securities. The fund sports a Zacks Mutual Fund Rank #1.

This Zacks sector – Europe-Equity has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

SCGEX has an annual expense ratio of 0.97%, which is below the category average of 1.11%. The fund generated three and five-year returns of 4.4% and 2.2%, respectively. SCGEX has an annualized dividend yield of 1.2% and a minimum initial investment of $2500.

BlackRock Global Dividend Portfolio Investor A Shares BABDX fund aims for current income that is more than the average yield on global stocks in general. The fund invests a minimum of 80% of its assets in dividend-paying equity securities and about 40% of its assets outside the United States. BABDX mostly invests in common stocks, preferred stocks, non-convertible preferred stocks and securities convertible into common and preferred stocks etc. The fund carries a Zacks Mutual Fund Rank #2.

This Zacks sector – Global-Equity product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

BABDX has an annual expense ratio of 0.99%, which is below the category average of 1.11%. The fund generated three and five-year returns of 7.3% and 5.4%, respectively. BABDX has an annualized dividend yield of 2.5% and a minimum initial investment of $1000.

Franklin Rising Dividends Fund Advisor Class FRDAX aims for long-term capital appreciation and capital preservation. The fund invests the majority of its assets in companies that have consistently increased dividends. The fund may invest in companies of any size and invest up to 25% of its assets in foreign securities. The fund carries a Zacks Mutual Fund Rank #2.

This Zacks sector – Large Cap Value product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FRDAX has an annual expense ratio of 0.63%, which is below the category average of 0.94%. The fund generated three and five-year returns of 13% and 9.7%, respectively. FRDAX has an annualized dividend yield of 1.3% and no minimum initial investment.

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