Despite a cold start last year, the U.S. mutual fund markets made a remarkable comeback in the last two months of 2016. While investors continued to take their money out of mutual funds for most parts of the year, the strong rebound in the final two months has helped mitigate the losses to some extent.
Separately, no load mutual funds emerged as the clear winners of 2016 as investors continued to shift their money from expensive funds to low cost funds. In this situation, it will be interesting to have a brief look into the performance of no-load mutual funds in 2016.
Comparative Performance of No-Load Funds
Mutual funds that carry no sales load managed to outperform their load counterparts throughout 2016. The top 100 funds out of the 10,181 no-load funds we studied registered an average total return of 59.6% last year, compared to the top 100 load funds' average total return of 37.6%. Overall, no-load mutual funds posted an average total return of 9.8%, also higher than 9.3% registered by load funds. This indicates growing popularity of no-load funds among investors.
The best performing no-load fund of 2016, ProFunds Precious Metals UltraSector Fund Investor (MUTF:PMPIX) gained 156.6%, significantly higher than Rydex Precious Metals Fund A's (MUTF:RYMNX) total return of 100.5%, the top performing load fund in 2016. The list of top performing mutual funds in 2016 is also dominated by no-load funds.
Investors always aim to make the best out of their total invested capital. Although choosing mutual funds with best returns is the principal goal of investors, they also aim to reduce their expenses incurred while buying or selling funds. This seems to be the primary reason behind the growing popularity of no-load funds.
Key Reasons Behind the Impressive Performance
After a dull first half 2016, financial markets made a strong rebound in the second half, leading the major benchmarks to register healthy gains for the year. Factors including Fed's gradual rate hikes, OPEC's decision to cut oil output, strong recovery in corporate profitability and GDP, and investors shrugging off black swan events like Britain's vote to leave the EU boosted major benchmarks as well as mutual fund markets' rally during the final half of the year.
Meanwhile, the victory of market-friendly Trump in the U.S. Presidential election emerged as one of the major boosters in recent times. Trump's promises of tax cut, increased spending on infrastructure and deregulations made investors believe that the economy will perform well during his presidency. This led the financial category to emerge as one of the best performers among mutual fund categories over the past three months and 2016.
5 Top-Ranked No-Load Funds
Considering this impressive performance, we have handpicked five no-load mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) and were among the best performers last year.
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 their likely future success.
In addition to encouraging returns last year, they also come with low expense ratios. The minimum initial investment is within $5000.
Oppenheimer Gold & Special Minerals Fund (MUTF:OGMYX) invests a large chunk of its assets in securities of companies that are involved in operations related to gold and precious metals. OGMYX returned 49.2% last year. Its annual expense ratio of 0.93% is significantly below the category average of 1.45%.
Vanguard Energy Investor (MUTF:VGENX) invests a major portion of its assets in equity securities of companies from the energy sector. VGENX returned 33% last year. Its annual expense ratio of 0.37% is significantly lower than the category average of 1.49%.
Fidelity® Select Semiconductors (MUTF:FSELX) invests the lion's share of its assets in securities of companies involved in operations related to the semiconductor industry. FSELX returned 32.4% last year. Its annual expense ratio of 0.74% is significantly below the category average of 1.45%.
Artisan Value Fund Investor (MUTF:ARTLX) invests nearly one-fourth of its assets in common stocks of foreign companies as well as in equity securities traded in foreign exchanges. ARTLX focuses on investing not only in developed markets but also in less developed and emerging markets. ARTLX returned 29% last year. Its annual expense ratio of 0.96% is significantly less than the category average of 1.07%.
Oppenheimer Global Opportunities Fund (MUTF:OGIYX) invests primarily in equity securities of companies throughout the globe including the U.S. OGIYX returned 11% last year. Its annual expense ratio of 0.94% is significantly lower than the category average of 1.26%.