Sharp decline in shares of Apple Inc. (AAPL – Free Report) and a strong U.S. dollar weighed on the broader markets, with the Dow falling 602 points on Nov 12. Given the bearish scenario, no-load mutual funds have once again grabbed attention. Mutual funds with no sales or commission charges are known as no-load funds. This generally happens when funds are traded directly through the investment company and not through some secondary entity.
This implies that they do not carry the burden of management funds unlike funds with entry or exit loads. It comes as no surprise that no-load funds have managed to provide better returns over their load peers so far this year.
Apple Slump Dragged Dow by 600 Points
The share price of Apple declined 5% on Nov 12 after one of its major suppliers Lumentum Holdings Inc. (LITE) reduced its earnings and revenue outlook for the fiscal second quarter of 2019. Further, Lumentum Holdings said that “one of its largest industrial and consumer customers for laser diodes for 3D sensing” — most likely Apple — has requested to “materially reduce shipments.”
Additionally, the U.S. Dollar Index (DXY) settled at around 97.58 on Nov 12, its highest level since Jun 23, 2017. The Fed signaled that it will increase the key interest rate for the fourth time in December. High rate hike prospects and fears of a possible no-Brexit deal in turn had a positive impact on the U.S. dollar. Decline in Apple and a higher greenback led the blue-chip index Dow to fall 2.3%or 602.12 points, to 25,387.18.
Why Invest in No-Load Funds?
No-load funds are those that do not bear any sales or commission charge at the time of buying or selling funds. This generally happens when funds are traded directly through the investment company and not through some secondary entity. Sales load is normally divided into front-end sales load and back-end sales load.
Front End Sales Loads: These are fees that an investor must pay at the time of investment. Also, categorized as “Sales Charge (Load) on Purchases,” these are charges an investor pays while purchasing a fund. The front-end sales load is deducted from the actual invested amount, and the remaining portion is actually used to buy funds.
Back-End Sales Loads: These are fees that an investor must pay while selling the investments. Categorized as the “Deferred Sales Charge (Load),” these fees are deducted while redeeming fund shares. The advantage of back-end sales load over front-end sales load is that the entire capital (minus other charges) is invested at the time of purchases. The sales load here is calculated off the initial investment made and not based on the ultimate fund value.
Comparative Analysis of No-Load Funds
Here, we have compared the average one-year annualized returns of the top 200 no-load funds, with the top 200 load funds. Of the total 768 Zacks Rank #1 (Strong Buy) non-load funds, the top 200 registered average one-year annualized returns of 24.6%, whereas from 263 Zacks Rank #1 load funds, the top 200 posted average one-year annualized returns of 13.2%.
With no-load funds registering comparatively better returns than load funds in the past year, no-load funds are expected to get more love from investors in the near future.
4 Zacks Rank #1 No-Load Funds to Buy Now
We have highlighted four no-load mutual funds flaunting a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging one-year annualized returns. Additionally, the minimum initial investment is within $5000 and net assets are above $50 million.
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.
Lord Abbett Developing Growth R6 (LADVX – Free Report) attains its investment goals through equity securities of companies that are expected to have long-term, above-average growth prospects. The fund invests more than 65% of its assets in small-cap companies. LADVX may also invest around one-tenth of its assets in non-U.S. companies.
LADVX carries an expense ratio of 0.59% compared with the category average of 1.28%. Moreover, LADVX requires minimal initial investment of $0. The fund has one-year annualized returns of 24.6%. Further, F. Thomas O’Halloran is one of the fund managers of LADVX since 2001.
Fidelity Advisor Series Growth Opportunities (FAOFX – Free Report) seeks appreciation of capital. FAOFX invests mainly in common stocks of companies that the Fidelity Management & Research Company expects to have above-average growth prospect. The fund invests in both U.S. and non-U.S. companies.
FAOFX carries an expense ratio of 0.01% compared with the category average of 1.17%. Moreover, FAOFX requires minimal initial investment of $0. The fund has one-year annualized returns of 20.8%. Further, Kyle Weaver is the fund manager of FAOFX since 2015.
AB Discovery Growth Advisor (CHCYX – Free Report) seeks capital growth for the long run. CHCYX maintains a diversified portfolio by investing in equity securities of small- and mid-cap companies. For the fund’s investment purpose, those small- and mid-cap companies that are chosen come from market cap from the lowest 25% of the overall U.S. equity market.
CHCYX carries an expense ratio of 0.72% compared with the category average of 1.22%. Moreover, CHCYX requires minimal initial investment of $0. The fund has one-year annualized returns of 13%. Further, Bruce K. Aronow is one of the fund managers of CHCYX since 2008.
Fidelity Select Medical Equipment and Systems Portfolio (FSMEX – Free Report) invests the bulk of its assets in securities of companies that focus on research, development, manufacture, distribution, supply, or sale of medical equipment and devices and related technologies. The fund invests in securities of U.S. and non-U.S. companies.
FSMEX carries an expense ratio of 0.75% compared with the category average of 1.36%. Moreover, FSMEX requires minimal initial investment of $2,500. The fund has one-year annualized returns of 20.1%. Further, Edward L. Yoon is the fund manager of FSMEX since 2007.
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