Best No-load Mutual Funds for 2016
Sam Subramanian PhD, MBA
Global stock markets appear poised to post lackluster returns in 2015. The Federal Reserve is contemplating raising interest rates for the first time since 2006. Will 2016 be a better year for global stock markets? What types of no-load mutual funds can fare well in 2016?
Year 2015 is turning out to be a ho-hum one for stocks.
Fidelity Spartan 500 Index Fund (FUSEX) that tracks the large-cap S&P 500 index ($SPX) is now up 3% for the year.
In comparison, Fidelity Spartan Small Cap Index Fund (FSSPX) that tracks the small-cap Russell 2000 index ($RUT) is up 1%.
The backdrop of low interest rates has helped growth mutual funds fare better than value mutual funds.
The average large-cap growth mutual fund is up 6% while the average large-cap value mutual fund is down 1%.
In foreign stock markets, quantitative easing measures adopted by the European Central Bank and the Bank of Japan have supported developed markets. The collapse in commodity prices has weighed on emerging markets.
Fidelity Spartan International Index Fund (FSIIX) that tracks the MSCI EAFE index is up 1% for year while the Fidelity Spartan Emerging Markets Index Fund (FPEMX) that tracks FTSE Emerging Index is down over 14%.
Global markets have had a hard time gaining traction in 2015. As of November 30, the U. S. and developed markets as measured by the S&P 500 and MSCI EAFE benchmarks are up 3% and 1%, respectively. Emerging markets as measured by the FTSE Emerging Index benchmark are down 14%. What types of funds are likely to be the best no-load mutual funds for 2016?
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What's Ahead for No-load Stock Mutual Funds in 2016?
Lingering concerns of a hike in interest rates whipsawed U. S. stocks through 2015.
This is likely to change in December.
Federal Reserve Chair Janet Yellen has stated that the first rise in interest rates since 2006 is a "live possibility" in December.
A wide range of recent economic data ... from job creation to core inflation ... supports the Fed's stance.
Some investors are concerned stocks would fare poorly in 2016 as interest rates rise.
History however does not suggest this is a foregone conclusion.
Reports compiled by Morningstar and Russell Research do not consistently show negative correlation between interest rates and stock market returns.
Studies conducted by Ned Davis Research and T. Rowe Price suggest the reason and pace of interest rate increase have a significant bearing on stock prices.
Stocks usually fare well if interest rates rise as the economy improves after a recession. They do not fare well if rates rise on inflation worries.
Ned Davis Research's analysis of data from the late 1970s shows U. S. stocks do quite well when the Fed avoids raising interest rates at each meeting and instead, hikes them gradually. Stocks on average gain 11% in a year during such slow raise cycles.
Stocks however decline during fast raise cycles when the Fed raises interest rates at every meeting.
Things are now favorable on both counts. First, the Fed is contemplating a rate increase as the economy has recovered from the Great Recession. Second, the Fed has reassured investors that it anticipates raising interest rate gradually.
Best No-load Mutual Funds for 2016
Historically, value stocks have fared better than growth stocks during periods of rising rates.
Likewise, large-caps outperform small-caps nearly two-thirds of the time when rates rise.
The verdict on the performance of foreign stocks vis-à-vis U. S. stocks during periods of rising rates is less clear.
Unlike previous tightening cycles, the Federal Reserve contemplates raising rates from an abnormally low, near-zero level this time. This tightening cycle also follows unprecedented levels of monetary intervention via quantitative easing.
However, one could argue job creation and economic growth are relatively subdued compared to the magnitude of stimulus provided.
It is entirely conceivable growth slows in response to a few interest rate increases and the Fed desists from upping rates beyond 2% to 3%.
If such a scenario does unfold, leadership of large-cap value mutual funds may turn out to be short-lived.
Instead, foreign mutual funds that have suffered from a rise in the U. S. dollar may see relief and fare better as countries with weaker currencies increase exports to the U. S. and boost profits.
Likewise, the performance of emerging market stocks too can improve if the pressure on commodity prices from a rising dollar eases.
In such a milieu, investors need a system that adapts to market dynamics and continually positions investment portfolios in leading no-load mutual funds.
The AlphaProfit No-Load, No-Transaction-Fee (NL-NTF) Growth model portfolio provided to AlphaProfit Premium Service investment newsletter subscribers is a portfolio that uses such a system.
This model portfolio uses its proven style rotation process to maintain the portfolio in leading no-load mutual funds. Learn more about AlphaProfit's Fidelity fund recommendations and fund model portfolios.
In 2015, the AlphaProfit NL-NTF Growth model portfolio included top performing no-load mutual funds like Akre Focus (AKREX) and Matthews Japan (MJFOX) that are comfortably ahead of their benchmarks.
Since the start of 2009, the model portfolio has benefited from the performance of several top rated no-load mutual funds. They include domestic funds like Fidelity Small Cap Discovery (FSCRX) & Janus Triton (JATTX) and foreign funds like Matthews India (MINDX) and Wasatch International Growth (WAIGX).
Prescient selection of top no-load mutual funds has enabled the AlphaProfit NL-NTF Growth model portfolio to gain at a 13.3% annual rate since the start of 2009.
The model portfolio's benchmark consisting of broad U. S. and foreign indexes has gained at a 10.6% annual rate during the same period.
In other words, the AlphaProfit NL-NTF Growth model portfolio has helped Premium Service subscribers earn 35% more money than index investors.
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