Author Archives: Scalper1

4 Mutual Funds Rookies To Outperform Older Peers

According to the research paper “Scale and Skill in Active Management” by professors Robert Stambaugh and Luke Taylor, younger actively managed mutual funds outperform the older ones in a defined time frame. The path-breaking study, published last year in the Journal of Financial Economics, also indicated that returns of funds decline as they grow older. The professors cited an increase in the size of active management industry and the entry of new competitors as the main reasons behind their findings. Taylor said, “If there are more people fishing in the same pond, that’s going to make it harder for any individual person to catch a fish.” Actively managed funds tend to invest in securities that are believed to be undervalued relative to their fundamentals and try to outperform broader indexes. In order to pursue this objective, asset management companies seek to employ active managers who utilize their forecasting power and judgement to decide on buying, selling or holding securities. As a result, portfolio compositions of these funds are believed to vary according to market conditions. This makes the study an interesting reference when the performance of the younger funds is compared to the older ones. It will be interesting to see which category helps investors to achieve their objectives. Younger Versus Older Funds Out of the mutual funds we studied, funds that were incepted on or after 2010 have been considered as younger funds and those incepted on or before 2005 have been categorized as the older ones. In order to analyze the performances of younger mutual funds compared to the older ones, we have selected the top 100 funds from each category on the basis of their performance since inception. While the load-adjusted average total return of 100 younger funds since their inceptions outpaced the same average of the top 100 older funds, the former also outperformed their older peers in recent years. Load-adjusted average total return since inception of the top younger funds came in at 18% against 13.5% of the top older funds. Moreover, the younger category registered an average total return of 17.7% in the last three-year period compared to 16.4% gain witnessed by the older ones. Last year too, when most of the mutual funds found it difficult to finish in the positive territory, the top younger funds managed to post an average gain of 4.4%, clearly outpacing the average return of only 2% registered by the top older ones. Before concluding that the younger funds may prove to be more profitable than the older funds, as the facts indicate above, let’s have a look at some of the arguments given by professors Robert Stambaugh and Luke Taylor in their paper. Arguments in Favor Both Stambaugh and Taylor identified younger managers’ improving skills and ability to use advanced technology for forecasting as the main reasons for the outperformance of younger active funds. They argued that with gaining popularity of mutual funds over the years, level and quality of training has increased over time. Betterment of training helped new fund managers to gain exposure to higher education, advanced technology and research tools, which in turn had a positive impact on the performance. To quote Taylor, “New funds entering the industry have more skill … possibly because of better education or a better grasp on technology.” Moreover, younger active funds that come with new strategies, never explored earlier, may attract more investor attention than the older funds. Separately, Taylor identified that the performance of a fund tends to decline with time as the industry size increases. With time, the number of competitors and size of individual funds are bound to grow. With increasing size, trading volume of the funds also tend to rise, which weighs on a fund’s performance. In order to improve performance, the fund manager needs to increase exposure to undervalued stocks. This involves identifying stocks which are incorrectly priced relative to their intrinsic value and picking potential sellers of the same. This will force the fund to offer a higher price for the stock if it is to be purchased immediately. Otherwise, the fund may wait for a longer period of time, which may result in the loss of some of the incentives of undervalued stocks. 4 Young Mutual Funds To Consider Based on these facts, we present four mutual funds that were incepted in 2010 or later and carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). We believe these funds will outperform their peers in the next few years. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify the 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. Along with impressive returns since their inceptions, these funds also have encouraging one- and three-year total returns (as of December 31, 2015). The minimum initial investment is within $5,000. These funds also have a low expense ratio and no sales load. Fidelity Series Real Estate Equity Fund (MUTF: FREDX ) seeks high income and capital appreciation. FREDX invests the majority of its assets in companies associated with the real estate industry across the world. The fund is expected to provide a higher return than that of the S&P 500 Index. FREDX was incepted in October 20, 2011. Since its inception, this Zacks Rank #1 (Strong Buy) fund has returned 12.7% and gained 3.6% and 12.7% over the past one- and three-year periods, respectively. FREDX has an annual expense ratio of 0.74%, significantly lower than the category average of 1.29%. It has no minimum initial investment. MFS International New Discovery Fund Retirement (MUTF: MIDLX ) invests in non-US equity securities, which also include equity securities of companies located in emerging nations. MIDLX invests in securities such as common stocks, preferred stocks and REITs. It invests in securities of companies that are believed to have impressive growth prospects. The fund may allocate a significant portion of its assets in a specific country or region. It was incepted in June 1, 2012. Since its inception, this Zacks Rank #1 fund has returned 9.2% and gained 2.9% and 6.3% over the past one- and three-year periods, respectively. MIDLX has an annual expense ratio of 0.95%, below the category average of 1.53%. It has no minimum initial investment. Thornburg International Value Fund Retirement (MUTF: TGIRX ) seeks growth of capital over the long run. It primarily focuses on acquiring securities of foreign companies and depository receipts. Though TGIRX invests in securities of companies located in both developed and developing nations, it invests a larger share of its assets in securities from developed markets compared to those from the developing markets. The fund was incepted in May 1, 2012. Since its inception, this Zacks Rank #2 (Buy) fund has returned 9% and gained 6.8% and 5.4% over the past one- and three-year periods, respectively. TGIRX has an annual expense ratio of 0.74%, lower than the category average of 1.34%. It has no minimum initial investment. Strategic Advisers Growth Fund (MUTF: FSGFX ) generally invests in Fidelity Funds and non-affiliated funds that take part in Fidelity’s FundsNetwork. FSGFX also invests in non-affiliated ETFs. It invests in large-cap companies having market capitalization within the universe of the Russell 1000 Growth Index. FSGFX was incepted in June 2, 2010. Since its inception, this Zacks Rank #2 fund has returned 16% and gained 5.1% and 16.7% over the past one- and three-year periods, respectively. FSGFX has an annual expense ratio of 0.31%, below the category average of 1.18%. It has no minimum initial investment. Original post

5 No-Load Vanguard Mutual Funds To Buy In February

The continuous slump in oil prices and weak Chinese economic data has resulted in a bloodbath in the U.S. stock market so far this year. The Dow and the S&P 500 suffered their biggest monthly losses in January since Aug 2015. Both the indexes had also snapped multi-year winning streaks to end in the red last year. In the face of this downtrend, a long-term view will help investors to stay calm. Also, one should look for investments that are less expensive. In this regard, Vanguard mutual funds could be a good choice due to their low expense ratios. The cost can be further reduced if one selects Vanguard funds that have no-load. Why Vanguard Funds? Vanguard funds witnessed a large inflow last year. This indicates that investors had flocked to passively managed funds, being dissatisfied with the widespread failure of actively managed funds. Investors poured in $236 billion of money in the Vanguard Group in 2015, the largest in the industry, according to Morningstar Inc. In fact, Vanguard witnessed total net inflows of about $1 trillion in the last five years, which is almost double the entire sum attracted by the hedge fund industry during the same period. Currently, it is one of the world’s largest investment management companies. It has crossed the milestone of $3 trillion in assets under management. The secret of Vanguard’s success last year lay in its very low expense ratios. The low cost to operate a mutual fund helped Vanguard to navigate the volatile broader markets, which were beleaguered with global growth worries and a rout in oil prices. Now, in 2016, these very same factors are continuing to haunt the stock market. The major U.S. indexes are already in correction mode. Hence, in order to navigate the choppy waters, Vanguard funds are the best choice. Vanguard’s Expense Ratio Declines In January, Vanguard reported expense ratio reductions for 35 individual mutual fund shares. This also includes 12 Vanguard target-date funds. Separately, the Vanguard Target Retirement 2035 Fund trimmed its expense ratio by 3 basis points. This U.S. mutual fund provider picked up the trend from last year. In 2015, Vanguard announced expense ratio reductions for 102 individual mutual fund shares. Vanguard has a history of lower expenses. In 1975, Vanguard managed $1.8 billion assets with an average expense ratio of 0.89%, while it currently manages about $3.2 trillion of assets and charges an average expense ratio of around 0.18%. If considered on an asset-weighted basis, the average expense ratio is even lower at 0.14%. Vanguard CEO Bill McNabb had said that “We strongly believe in setting our investors up for success, and one of the best ways to do that is to keep the cost of investing low, enabling them to keep more of what they earn.” Additionally, Todd Rosenbluth, director of ETF and mutual fund research at S&P Capital IQ said that “due to strong inflows in Vanguard mutual funds, they are able to bring expense ratios down for many mutual funds on a regular basis.” The Advantage of No-Load Funds Investing in no-load mutual funds reduces investors’ expenditure. Numerable research showed that no-load funds fared better than load funds on many occasions. Last year, out of the 15,129 no-load funds, the top 100 funds showed an average yearly return of 16.74%, beating the top 100 load funds’ average return of 11.05%. The average return of these top 100 no-load funds also came in ahead of the top performing mutual fund categories in 2015 such as Japan stock, healthcare and foreign small/mid growth to name a few. 5 No-Load Vanguard Mutual Funds to Consider As the stock market is subject to a persistently downward trend, mostly due to a continuous drop in oil prices and the crisis in China, it will be prudent to invest in no-load Vanguard Mutual Funds. In addition to the advantages discussed above, Vanguard mutual funds don’t charge front-end and back-end loads. A front-end load is charged while purchasing the shares. This type of fees can be as high as 8.5%. This might curtail a $50,000 investment to $45,750. On the other hand, a back-end load is charged when shares are sold. This type of fees can be as high as 5% to 7%. Meanwhile, Vanguard mutual funds charge expense ratios that are on an average 82% less than the industry average. Let us now take a hypothetical low-cost scenario. We assume that the value of a portfolio is $100,000 and it is expected to grow at an average of 6% yearly. Now, if we consider an expense ratio in a low-cost environment to be 0.25%, while the higher-cost scenario has an expense ratio of 0.9%, then in almost 30 years, the low-cost investor will emerge as a winner by gaining about $100,000 more than the high-cost investor. Additionally, such funds when combined with a Zacks Mutual Fund Rank #1 (Strong Buy) are expected to boost your returns. The following funds also have impressive 3-year and 5-year annualized returns and the minimum initial investment is within $5000. Vanguard Strategic Equity Fund Investor (MUTF: VSEQX ) seeks maximum long-term capital growth by investing in stocks of small and midsize companies. VSEQX’s 3-year and 5-year annualized returns are 10.8% and 11.1%, respectively. VSEQX carries a Zacks Mutual Fund Rank #1 and has neither a front load nor a deferred load. The annual expense ratio of 0.21% is lower than the category average of 1.15%. Vanguard New Jersey Long-Term Tax-Exempt Fund Investor (MUTF: VNJTX ) seeks a high level of income exempt from both federal and New Jersey personal income taxes. VNJTX invests in high-quality municipal bonds issued by New Jersey State. VNJTX’s 3-year and 5-year annualized returns are 3.5% and 5.8%, respectively. VNJTX carries a Zacks Mutual Fund Rank #1 and has neither a front load nor a deferred load. The annual expense ratio of 0.20% is lower than the category average of 0.91%. Vanguard Ohio Long-Term Tax-Exempt Fund Inv (MUTF: VOHIX ) seeks a high level of income exempt from both federal and Ohio personal income taxes. VOHIX invests in high-quality Ohio municipal securities. VOHIX’s 3-year and 5-year annualized returns are 4.2% and 6.4%, respectively. VOHIX carries a Zacks Mutual Fund Rank #1 and has neither a front load nor a deferred load. The annual expense ratio of 0.16% is lower than the category average of 0.97%. Vanguard Value Index Fund Investor (MUTF: VIVAX ) seeks long-term growth of capital and income from dividends. VIVAX holds all the stocks in the Standard and Poor’s Value Index and attempts to match the performance of the index. VIVAX’s 3-year and 5-year annualized returns are 9.6% and 9.4%, respectively. VIVAX carries a Zacks Mutual Fund Rank #1 and has neither a front load nor a deferred load. Annual expense ratio of 0.23% is lower than the category average of 1.11%. Vanguard Balanced Index Fund Investor (MUTF: VBINX ) seeks income and long-term growth of capital and income. VBINX’s assets are divided between indexed portfolios of stocks and bonds, with 60% of its assets in stocks and 40% in fixed-income securities. VBINX’s 3-year and 5-year annualized returns are 6.8% and 7.4%, respectively. VBINX carries a Zacks Mutual Fund Rank #1 and has neither a front load nor a deferred load. The annual expense ratio of 0.23% is lower than the category average of 0.89%. Original Post

3 Top-Ranked Real Estate Mutual Funds To Invest In

For investors looking to park their funds in the real estate sector, mutual funds are the cheapest and most convenient method. This category of funds also offers superior protection against inflation. The real estate sector has seen tough times recently, but the presence of these investments generally adds stability to a portfolio. This is because the volatility in property prices is far less compared to the kind experienced by stocks. Adding such funds to a widely diversified portfolio would increase returns while reducing the associated risk significantly. Below we will share with you 3 best rated real estate mutual funds . Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) as we expect these mutual funds to outperform their peers in the future. Alpine Realty Income & Growth Fund A (MUTF: AIAGX ) seeks current income. AIAGX invests the majority of its assets in securities of issuers involved in the real estate industry, real estate financing or controlling real estate assets not less than half of such issuer’s assets. AIAGX may invest a maximum 35% of its assets in securities of foreign issuers. The Alpine Realty Income & Growth Fund A is a non-diversified fund with a three-year annualized return of 7.5%. Robert W. Gadsden is the portfolio manager and he has been managing AIAGX since 1999. Cohen & Steers Real Estate Securities Fund Inc. C (MUTF: CSCIX ) invests a large chunk of its assets in common stocks of companies whose operations are related to the real estate domain and REITs. CSCIX is expected to invest not more than 20% of its assets in non-U.S. companies, including those from the emerging economies. CSCIX may also invest in Depositary Receipts of different countries. The Cohen & Steers Real Estate Securities Fund Inc. C is a non-diversified fund with a three-year annualized return of 10.1%. As of December 2015, CSCIX held 41 issues, with 10.28% of its total assets invested in Simon Property Group Inc. (NYSE: SPG ) T. Rowe Price Real Estate Fund (MUTF: TRREX ) seeks growth over the long term. TRREX invests a major portion of its assets in equity securities of real estate companies. TRREX invests mostly in equity real estate investment trusts. TRREX may invest a maximum 25% of its assets in foreign securities. TRREX offers dividends quarterly in March, June, September and December. Capital gains are offered in December. The T. Rowe Price Real Estate Fund has a three-year annualized return of 9.1%. TRREX has an expense ratio of 0.76% as compared to the category average of 1.29%. Original Post