Market trends so far this year has not been as robust as the previous two years. Like 2014, markets had started with a dismal January but a robust February followed close on the heels. However this time benchmarks have failed to sustain strong gains. In fact, the recent market rout is in stark contrast to the multiple highs that benchmarks kept scoring in recent years. Among other factors, China's economic concerns and global growth worries, Greece debt negotiation, a stronger dollar and dismal earnings season for both the first and second quarter have taken the sheen away.
China had shown promise of continuing the robust run before it hit a hurdle in mid-June. After strong gains, the second largest economy is showing a downtrend as government measures to prop up prices have shown temporary effect.
Not only for China, but it may seem that the U.S.'s Bull Run is having to tackle many hurdles. Nonetheless, investors need not lose heart as there are many profitable investment instruments. There are a good number of mutual funds that have above 20% gains in each of the last 1, 3 and 5 year periods. Moreover, these funds also have robust year-to-date return, surpassing the broader markets' return. The Bull Run might have helped these funds achieve the 20% plus return, but to gain significantly this year is also commendable.
Before we pick these funds, let's look at the markets' run over these five years. We have narrowed down the funds backed by favorable Zacks Mutual Fund Ranks.
Market Optimism in Last 5 Years
Stepped-up economic activities, rising business and consumer confidence, record corporate profits, recovering housing fundamentals and continued job creation have injected optimism into the economy.
The housing market has gathered enough strength from the lows of 2009, the labor market looks strong with the unemployment rate hitting five and a half year low. Separately, General Motors is very much back in business and Lehman Brothers emerged from bankruptcy in 2012.
Annually, real GDP was always in the green since 2009. For 2010, 2011, 2012, 2013 and 2014, the economy grew at 2.5%, 1.6%, 2.3%, 2.2% and 2.4%.
The US central bank has kept the rates at record low for a prolonged period. Lower rates reduce borrowing costs for households, corporate and financial institutions. This encourages borrowing and thereby economic activity.
Moreover, the central bank carried three quantitative easing programs to spur the economy. The Fed announced in Oct 2014 the end of its bond-buying stimulus program. The quantitative easing program was started during the 2008 recession in order to stimulate jobs growth. During 2013, the third round of monetary stimulus plan announced the central bank would repurchase $85 billion worth of mortgage and treasury bonds. The QE programs were one of the key factors driving markets up.
Keep reading our Mutual Fund Commentary section to find out the worst performing funds over 10 years in our next article.
Markets in 2015
The year 2015 has definitely not been an impressive one so far. Losses in January was followed by gains in Feb and then ended in the red again in March. Though markets managed small gains in April and May, they were back to the negative zone in June. Focusing on June particularly, the losses for Dow and S&P 500 were the largest since January.
The first half performance of mutual funds cannot be termed as very strong. Only four of the mutual fund categories could post above 10% gain in the first half. Just 41% of mutual funds could manage to finish in the green in the second quarter. This is less than half of the 81% gains scored by mutual funds in the first quarter.
In the first half of 2015, fund inflow slumped 36% year over year to $143 billion. This significant decline was largely due to the dismal trend in the second quarter; wherein inflows were down to $41 billion through Jun 17, comparing unfavorably with the $102 billion of inflows in the first quarter.
Presently, China's concerns have merged with other headwinds to lead to global market rout. Last Friday, the Dow Jones Industrial Average slumped over 530 points and over 580 points on Monday. The rout was not solitary to the US markets on Friday. On the other side of the Atlantic, the FTSE 100 hit its lowest level this year. Germany's DAX was down nearly 16% from record highs reached in April. Separately, Japan's Nikkei slumped roughly 3% to six-week lows. Meanwhile in Australia, the benchmarks are suffering their worst month since the financial crisis in 2008.
Funds with Highest Average Returns
Let's now look into funds that have had the best 3 and 5 year annualized gains and also over the year-to-date and 1-year periods. The year-to-date robust gains prove that these funds were not only strong gainers during the Bull Run, but they have tackled the concerns in 2015 as well. We have narrowed down our search to present 5 funds with the highest gains over these periods using simple average calculation. However, the list is dominated by healthcare funds.
They carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy) as we expect the funds to outperform its 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 the likely future success of the fund.
The Fidelity Select Biotechnology Portfolio (MUTF:FBIOX) seeks capital appreciation. FBIOX invests a large share of its assets in companies primarily involved in research, development, manufacture, and distribution of various biotechnological products. Factors such as financial strength and economic condition are considered to invest in companies located all over the world.
FBIOX currently carries a Zacks Mutual Fund Rank #1. FBIOX boasts year-to-date return of 8.8% and has returned 27.5% over the past 1 year. The 3 and 5 year annualized gains stand at 35.4% and 35.8%. The annual expense ratio of 0.74% is lower than category average of 1.35%.
The Janus Global Life Sciences Fund (MUTF:JAGLX) seeks capital appreciation over the long run. JAGLX invests a large chunk of its net assets in companies from the healthcare sector. JAGLX invests a minimum of 25% of its assets in companies from "life sciences" sector.
JAGLX currently carries a Zacks Mutual Fund Rank #2. JAGLX boasts year-to-date return of 9.5% and has returned over 24% over the past 1 year. The 3 and 5 year annualized gains stand at 34.1% and 28.9%. The annual expense ratio of 0.92% is lower than category average of 1.35%.
The T. Rowe Price Health Sciences Fund (MUTF:PRHSX) invests a lion's share of its net assets in common stocks of companies engaged in the research, development, production, or distribution of products or services related to health care, medicine, or the life sciences. PRHSX may invest in companies of any size, the majority of fund assets are invested in large and mid capitalization companies.
PRHSX currently carries a Zacks Mutual Fund Rank #2. PRHSX boasts year-to-date return of 10.3% and has returned 25.1% over the past 1 year. The 3 and 5 year annualized gains stand at 31.3% and 31.7%. The annual expense ratio of 0.77% is lower than category average of 1.35%.
Fidelity Select Health Care Portfolio (MUTF:FSPHX) seeks capital growth over the long run. FSPHX invests a lion's share of its assets in companies involved in designing, manufacturing and selling of healthcare products and services. FSPHX invests in companies throughout the globe.
FSPHX currently carries a Zacks Mutual Fund Rank #1. FSPHX boasts year-to-date return of 3.5% and has returned over 14.3% over the past 1 year. The 3 and 5 year annualized gains stand at 30.9% and 28.2%. The annual expense ratio of 0.74% is lower than category average of 1.35%.
Fidelity Select Retailing Portfolio (MUTF:FSRPX) invests a minimum of 80% of its assets in securities of firms involved in merchandising finished goods and services to consumers.
FSRPX currently carries a Zacks Mutual Fund Rank #2. FSRPX boasts year-to-date return of 5.1% and has returned 15.9% over the past 1 year. The 3 and 5 year annualized gains stand at 20.3% and 22.9%. The annual expense ratio of 0.81% is lower than category average of 1.46%.
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