Mutual Funds Enjoy Very Favorable Impression: 3 Funds to Buy Now

According to the recently published annual survey by the Investment Company Institute, mutual funds dominate a significant portion of investment choices by US households. About 53.2 million U.S. households and 90.4 million individual investors were the owners of mutual funds in mid-2014. The 44.3% of U.S. households owning shares of mutual funds and U.S. registered investment companies include closed-end funds and exchange-traded funds among others.
What is more promising for mutual funds is that its popularity has remained on the higher side. The popularity of mutual funds is reemphasized by the fact that favorability rating among shareholders for mutual fund companies has remained at 68% in mid-2014.
Mutual funds are definitely a preferred alternative investment option for more than one reason. Before looking into 3 top fund picks currently, let’s look into the details of the popularity of mutual funds.

Mutual Funds as Alternative Investment
Mutual funds are great options for investors looking for a relatively less risky way to earn at least more than what fixed income instruments offer. Money from individuals and even organizations are invested in stocks, bonds, or other assets covering diverse industries globally.
One of the benefits of mutual funds is that it allows a small investor to invest in a basket of securities at once. Investors need not worry about investing a large chunk in securities separately. Moreover, these are less risky than any individual asset class as underperformance of a security that is mitigated by outperformance of others in the portfolio. In addition to the asset diversification, mutual funds also provide liquidity, economies of scale and are professionally managed.

Favorable Impression for Mutual Funds
While the percentage of households having “very” or “somewhat” favorable impressions of fund companies continued to be the same as in May 2013 at 68%, fund investors having “very” favorable impression surged from 13% in May 2013 to 17% in May 2014. Meanwhile, 87% of shareholders with opinion on fund companies and familiar with mutual fund companies had “very” or “somewhat” favorable impressions.

The somewhat favorable impression percentage has been stable over the years, while the very favorable impression keeps changing. The following chart shows the percentage changes since 1997.

Source: ICI
According to ICI: “In 2014, the Annual Mutual Fund Shareholder Tracking Survey was revised to include a dual frame random digit dial (:RDD) sample design. In prior years, the survey used a landline RDD sampling frame.”

All About Fund Performance?
Most investors believe that fund performance is primarily the driving factor behind investor sentiment. Forty one percent of the investors familiar with mutual fund companies ranked fund performance as the most crucial, while 19% believed opinion of the professional financial advisers help them shape their point of view on the mutual fund industry. Among other factors, 13%, 10%, 9%, 7% and 1% believed the factors driving investor reaction are personal experience with mutual fund companies, friends and family, current events in financial markets, stock market fluctuations and media coverage, respectively.
For this year, the survey also stated that more number of investors were confident that mutual funds will help achieve their financial goals. About 84% were confident about mutual funds’ ability to help them reach financial goals. Also, one in four investors were “very” confident in mid-2014, up from a ratio of one in five feeling very confident in May 2013.
The confidence is perhaps justified given that the US markets have enjoyed the Bullish trend this year. The S&P 500 and the Dow are often extending the record highs. While the S&P 500 (.INX) is up nearly 12% year to date, the Dow is up 7.5% so far this year.

Mutual funds too have gained with healthcare, real estate and utilities leading the gains among the sector equity funds. Looking at all category performances and total return, India Equity funds (International Equity Funds) lead the race followed by Trading-Leveraged Debt (Alternative funds), Health, Real Estate and Long Government (Taxable Bond Funds).

Source: Morningstar
Returns as of Nov 24, 2014

3 Top Performers This Year

Based on the top performance so far this year, we will pick 3 best ranked mutual funds from varied categories. The funds carry a Zacks Mutual Fund Rank #1 (Strong Buy).

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.

These funds are also among the top performers this year. They have relatively low expense ratio and carry no sales load.

Healthcare

Fidelity Select Health Care Portfolio (FSPHX) invests the majority of its assets in companies whose principal operations include production, design and sales of health care related products or services. The fund focuses on acquiring common stocks and invests in companies all over the globe. This healthcare mutual fund is non-diversified and returned 38.1% over the last one year period.

The fund boasts year-to-date return of 31.2%. It carries an annual expense ratio of 0.76% as compared to category average of 1.43%.

Among the top holdings of the fund are Actavis PLC (ACT), McKesson Corp (MCK), Shire PLC ADR (SHPG), AbbVie Inc (ABBV) and Alexion Pharmaceuticals Inc (ALXN). These stocks have year-to-date returns of 60.9%, 29.5%, 50.3%, 28.9% and 45.1%, respectively.

Real Estate

JHFunds2 Real Estate Securities 1 (JIREX) seeks to provide long-term growth of capital as well as current income. The fund invests a large proportion of its assets in equity securities issued by real estate investment trusts and companies. Not more than 10% of its assets may be invested in foreign firms.

The fund boasts year-to-date return of 27.3%. It carries an annual expense ratio of 0.78% as compared to category average of 1.34%.

Among the top holdings of the fund are Simon Property Group Inc (SPG), AvalonBay Communities Inc (AVB), HCP Inc (HCP), Ventas Inc (VTR), and General Growth Properties Inc (GGP). These stocks have year-to-date returns of 17.7%, 32.9%, 20.5%, 22.7% and 32.5%, respectively.

Long Government

Wasatch-Hoisington US Treasury (WHOSX) invests almost all its assets in U.S. Treasury securities to provide returns higher than rate of inflation over a business cycle. The fund also invests in repurchase agreements collateralized by Treasury securities. The average maturity and the portfolio duration are adjusted based on HIMCO's assessment of multi-year trends in several factor like economic conditions, inflationary pressure, rate changes and U.S. Treasury bonds’ long-term value in relation to inflation.
The fund boasts year-to-date return of 24.6%. It carries an annual expense ratio of 0.71% as compared to category average of 0.56%.

About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank in our Mutual Fund Center.

Read the analyst report on FSPHXJIREXWHOSX


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