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Sick of Feeling Overwhelmed by Mutual Fund Choices? Zacks Mutual Fund Rank is Your Remedy

Parth Panchal

Are you having trouble choosing which mutual funds to invest in? You’re not the only one out there. In a world that seems to have an infinite amount of investment vehicles, it can be difficult to narrow down the best ones, especially when it comes to mutual funds.

Zacks Mutual Fund Rank is a principal tool to utilize in clearing the noise. Covering nearly 19,000 mutual funds, Zacks Mutual Fund Rank is on a scale of #1 (Strong Buy) to #5 (Strong Sell); #1’s are the best funds to own and #5’s are the worst.

On a quarterly basis, Zacks Mutual Fund Rank is updated. The ranking system is exclusive and created by the Zacks Quantitative Research Department. In detail, there are two fund systems utilized to create the best mutual fund ranking: one for U.S. stock-based mutual funds and one for all other funds.

For U.S. stock-based mutual funds, Zacks assesses the average Zacks Rank of the stock holdings in the fund. This system also includes a blend of criteria that Zacks research proves to be beneficial in finding mutual funds which will outperform in the future. So, U.S. stock-based mutual funds which hold stocks that have a high Zacks Rank will also have a high Zacks Mutual Fund Rank.

What is the Zacks Rank you ask? Zacks Rank is a stock rating system which has tripled the S&P 500 since 1988 and has had an average yearly gain of 26%. This performance covers the period from 1988 to 2015, and has been validated by independent accounting firm Baker Tilly Virchow Krouse, LLP. For an in-depth look at the Zacks Rank, please utilize Zacks Rank Education Home for free video and article resources.

The second mutual fund ranking systems considers all mutual funds outside a U.S. stock-base. Each fund is individually measured through performance and quality ratings. Key factors which lead to mutual fund out performance has been identified by Zacks Quantitative Research Department.

Now, I know all this information is great, but what does it mean for you? It means proven outperformance. Zacks Mutual Fund Rank #1’s have continually returned better than Zacks Mutual Fund Rank number #5’s. Let’s take a look at Mid-Cap Blend mutual funds.

Charted below is a comparison of the performance of Mid-Cap Blend mutual funds with a Zacks Mutual Fund Rank of #1 and #5. Zacks Mid-Cap Blend mutual funds with a rank of #1 performed 4.8% better than ones with a rank of #5 from 2014 to 2016. Also, the annualized return spread is 1.39%; this means that, annually, Mid-Cap Blend mutual funds with a Zacks Mutual Fund Rank of #1 outperformed Mid-Cap Blend mutual funds with a Zacks Mutual Fund Rank of #5 by 1.39%.

Proven outperformance does not stop with Mid-Cap Blend mutual funds. All-Cap Value mutual funds return spread from 2014 to 2016, annualized, is 2.81%, Small-Cap Value mutual funds being 2.46%, Mid-Cap Value mutual funds at 1.93% and Large-Cap Value mutual funds with 1.52%.

These seem like small spreads, don’t they? Does an annual performance difference of 2% make a big difference? Yes! Looking at our performance data for Mid-Cap Blend mutual fund ranks #1’s and #5’s, their respective annualized return is 5.81% and 4.34%. Now, if $10,000 is invested at that rate over 10 years, the original $10,000 is turned to $17,588.39 for the #1’s and $15,296.48 for the #5’s. A miniscule 1.4% difference led to the loss of thousands of dollars.

Due to the array of choices, investing in mutual funds is a cloudy space. However, clearing the space with the proven performance of Zacks Mutual Funk Rank provides a wealth of focus and organization for your investments.

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