In spite of registering this year’s best gains last week, the benchmarks remained deep in the red due to volatility in oil prices along with weakness in global and domestic growth. The Dow, the S&P 500 and the Nasdaq are down 5.7%, 6% and 10.1% in the year-to-date frame. In this erratic market, low-beta funds, which provide a better understanding on volatility or the systematic risk of a portfolio in comparison to the broader market, may turn out as safer investments. Meanwhile, low-beta funds from broader categories like utility, precious metals and municipal bonds that are performing well this year despite an overall negative tone, may offer healthy returns with low associated risk. Surging Volatility The CBOE Volatility Index (VIX) – considered the most popular fear gauge – has surged 15.2% in the year-to-date frame and is hovering around 20, indicating fears of a downtrend among investors. Investopedia defines VIX as “a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.” VIX also increased 11.2% and 13.1% over the past five days and in the trailing one-month period, respectively. The deep plunge in oil prices with short-lived spikes has been troubling investors since the start of 2016. Despite several indications, the major oil producers failed to take a bold step in reducing output and thus left a negative impact on oil prices and the broader markets. Moreover, the growth condition in major economic zones including the U.S., China and Eurozone appears bleak. And if these weren’t enough, the recent slump in global financial stocks added to investors’ worries. Why Low-Beta? Generally, there are five indicators of investment risks, namely alpha, beta, r-squared, standard deviation and the Sharpe ratio. Among these, beta is a popular tool to measure the level of volatility in a mutual fund in contrast to the broader markets. “Essentially, beta expresses the fundamental tradeoff between minimizing risk and maximizing return,” according to Investopedia. Therefore, when the major benchmarks are facing a high level of volatility, investors may seek low-beta funds to minimize the risk level in their investments. Now, the question is: what is the range of low beta? Beta ranging from 0 to 1 is generally considered low beta as funds falling in this range will show less volatility than the broader markets. While negative beta indicates an inverse relationship with the broader markets, beta equal to 0 signals no relationship at all. Beta with a minimum value of 1 indicates that the fund will experience the same or a higher level of volatility than the broader markets. 3 Low-Beta Funds from Winning Sectors Low-beta funds from sectors with a safe-haven appeal are favorable in an unstable market. This is why precious metals – especially gold- utilities and municipal bonds are enjoying a dream run since the start of this year. We present three mutual funds from the above-mentioned sectors that carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy) and have beta within 0 to 1. 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. These funds have steady three-month and year-to-date returns. The minimum initial investment is within $5000. Also, these funds have a low expense ratio and no sales load. Precious Metal Fund After experiencing a rough patch for three years, mutual funds having significant exposure to securities related to gold made a strong rebound this year by virtue of their safe-haven appeal. The American Century Quantitative Equity Funds Global Gold Fund Inv (MUTF: BGEIX ) seeks total return. BGEIX invests in securities of global companies whose operations are related to gold or other precious metals. The fund invests the lion’s share of its assets in companies involved in processing, mining, fabricating and distributing gold or other precious metals. BGEIX currently carries a Zacks Mutual Fund Rank #2 and a 3-year beta of 0.33 against the standard index. The fund has three-month and year-to-date returns of 30% and 30.3%, respectively. The annual expense ratio of 0.67% is lower than the category average of 1.44%. Utility Fund Utility is prospering this year thanks to the safety it offers. The broader utility sector, which has added 8.1% in the year-to-date frame, is the biggest gainer among the S&P 500 sectors. Also, dimming prospects of an immediate rate hike gave a boost to this sector, which requires a high level of debt. American Century Utilities Fund Investor (MUTF: BULIX ) invests a large portion of its assets in equities related to the utility industry. BULIX’s portfolio is constructed on qualitative and quantitative management techniques. In the quantitative process, stocks are ranked on their growth and valuation features. The fund currently carries a Zacks Mutual Fund Rank #1 and a 3-year beta of 0.36 against the standard index. The three-month and year-to-date returns of BULIX are 8.5% each. The annual expense ratio of 0.67% is lower than the category average of 1.25%. Municipal Bonds Fund Municipal bond funds are attracting healthy investments since the start of this year. According to Lipper, these funds witnessed a net inflow of $669 million in the week ended Feb 17, preceded by an inflow of $940.7 million in the prior week. Russell Tax Exempt Bond Fund (MUTF: RTBEX ) seeks tax-exempted current income. RTBEX invests the major portion of its assets in securities that are expected to provide income free from federal income tax. The fund primarily focuses on acquiring municipal debt obligations that are rated as investment grade. RTBEX currently carries a Zacks Mutual Fund Rank #2 and a 3-year beta of 0.69 against the standard index. The three-month and year-to-date returns of RTBEX are 2.4% and 1.6%, respectively. The annual expense ratio of 0.78% is lower than the category average of 0.81%. Original Post