If you’re searching for the very best mutual funds to invest in today, would you select funds with stocks and bonds that are hot right now or those with a solid long-term track record? With IBD’s Best Mutual Funds 2018 Awards, you can find funds that measure up to both yardsticks.
The winners of IBD’s third annual Best Mutual Funds Awards show what investing in top performers — over the short or longer haul — can do for your wealth. The list of mutual funds spotlights funds that beat their benchmark indexes over the past one, three, five and 10 years. These top-performing mutual funds deftly navigated recent stock market trends as well as other market environments over the mid- and long-term. Special recognition is given to the five best mutual funds in each of 12 categories.
What are the different types of funds? Seven of the categories, as defined by Morningstar, are overall U.S. diversified stock funds and their offshoot subcategories: growth, blend, value, large cap, midcap and small cap. The other five are sector, international stock, U.S. taxable bond, municipal bond and international bond funds. The best mutual fund lists for 2018 let you quickly identify funds that could help your portfolio’s performance going forward.
In terms of style, growth funds dominated the list of Best Mutual Funds 2018, while fewer blend and value funds made the list. Among size categories, more large-cap funds outperformed, while fewer midcap and small-caps funds earned awards. And Japan-focused funds moved up the ranks of award winners in the international stock category, thanks to stronger 10-year returns.
All the funds considered for these lists have at least $100 million in assets and 10 years of operation.
Beating a benchmark for all four periods isn’t easy. For the 2018 list, 2,806 mutual funds met the criteria of having at least $100 million in assets and 10 years of operation tracked by Morningstar Direct, but only 627 funds beat their performance benchmark across all four periods evaluated. Of the 1,104 U.S. diversified stock funds, only 115 outperformed the S&P 500 benchmark in the four periods.
A big divide emerged between growth and its value and blend counterparts as the bull market charged ahead during 2017. With the 2016 presidential election as a tail wind, equity markets in the U.S. and abroad advanced to record highs throughout the year. The S&P 500 rose 20% and the Nasdaq composite soared 29% in 2017 — high marks to beat. Yet growth funds emerged as the big winners.
While large caps saw the biggest percentage of funds — 14% — that beat their benchmark stock index, small- and midcap funds made up the top-performing mutual funds in both the U.S. Diversified Stock and Growth categories. What is the best-performing mutual fund in those categories? Primecap Odyssey Aggressive Growth (POAGX), a midcap fund, topped the two categories. Second and third place in both groups went to small-cap funds T. Rowe Price New Horizons (PRNHX) and Brown Capital Management Small Company (BCSIX), respectively.
Of 464 growth funds, 113 beat their benchmark in all four periods vs. nine last year. But out of 430 blend funds, only 11 made the cut, half the number from the prior year. And in the value camp, none of the 289 funds were winners, vs. 20 that made the cut last year.
In addition to growth, other areas showing strength included international stock funds and U.S. taxable bond funds. Of 462 international equity funds meeting the 10-year-old and $100 million asset thresholds, 127 topped the MSCI EAFE index. That represented a 27% win rate. Japan flexed its muscles in 2017, with Hennessy Japan Small Cap Investor (HJPSX) and Hennessy Japan Institutional (HJPIX) taking the top and third-place honors in the category.
Nearly half, or 253, of 521 U.S. taxable bond funds beat their benchmark for a 49% success rate. PIMCO exerted its dominance with three of its funds making the top five: PIMCO Extended Duration Institutional (PEDIX), PIMCO Income Institutional (PIMIX) and PIMCO Fixed Income Shares (FXICX). International bond funds made a solid showing too, with 46% of 57 funds in the category topping their benchmark.
So, What Are The Best Mutual Funds To Buy?
The IBD Best Mutual Funds 2018 list is a great resource for evaluating mutual funds to invest in, whether you’re searching for top-performing funds to bolster your current portfolio or you are a newbie to mutual fund investing. For instance, you can pick funds from the U.S. diversified and six related (style, market cap) categories to build core positions in your diversified retirement portfolio.
The best sector funds, international equity funds and bond funds can help you diversify by offering exposure to those areas. Before making any purchases, though, be sure to check which funds best fit your investment horizon and risk tolerance.
You can build your investment profile with the help of a financial advisor or by filling out a form provided by major fund companies and brokers. This step doesn’t take long and is widely recommended for all investors. Check the companies’ websites for forms, as well as for fund information such as prospectuses, quarterly reports and manager commentaries.
How To Compare Mutual Funds
What if a fund you already own is not on the award winners list?
That doesn’t necessarily mean you should dump it. Assess whether the portfolio managers are competent and if the fund meets a specific need in your portfolio. Did it beat its benchmark in most time periods?
Some categories saw a sizable number of funds that failed to outperform in just one of the four periods. There were 111 near misses among U.S. diversified stock funds, 68 in growth, 104 in international equity and 44 in U.S. taxable bond funds. In all, there were 454 near misses across all categories. A narrow miss in one or two periods is likely not enough reason to exit a fund.
Repeating as a Best Mutual Funds Awards winner is a tough feat. But a total of 327 funds across all 12 categories did so. The U.S. taxable bond fund group boasted the most repeat winners, 140. International stock funds saw 67, and 41 represented U.S. diversified stock funds.
While funds younger than 10 years old did not qualify for the awards, a number showed strong performance across multiple time periods. Of those that have been around at least five years but less than a decade, 249 beat their bogeys for one, three and five years. Again, U.S. taxable bond funds and international stock funds led with 66 and 68 funds.
YOU MAY ALSO BE INTERESTED IN:
The post These Best Mutual Funds For 2018 Can Help You Build A Winning Portfolio appeared first on Investor's Business Daily.