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5 Top Performing Best-Ranked Mutual Funds in Q1

A strong rebound in the second half of the first quarter helped most of the major benchmarks to finish the January–March period in the green. While the Dow and the S&P 500 closed in the positive territory for the second consecutive quarter, the Nasdaq ended in the red and posted its worst first-quarter performance since 2009. A massive slump witnessed earlier this year following weak global growth and a plunge in oil prices, boosted demand for securities related to the safe haven sectors like gold and utilities.

This is the reason why mutual funds from these sectors secured the top spots among the best performers during the opening quarter of 2016. We shall discuss the best performing top-ranked funds during the quarter in this article. But before that, we’ll look at the key influences on the markets in the last three months.

January

While the Dow and the S&P 500 suffered their biggest monthly losses in January since Aug 2015, the Nasdaq declined the most since May 2010. Disappointing economic data from China, including weak economic growth, dampened investor sentiment. Additionally, continued oil supply glut, a stronger dollar and heightened tensions in the Middle East affected oil prices. Weak domestic economic data and mixed fourth-quarter results dampened investor sentiments no less.

February

The benchmarks remained mixed in February with the S&P 500 and the Nasdaq posting losses for three straight months for the first time since Sep 2011. The Dow however increased 0.3%, marking its highest pace of increase since Nov 2015. The benchmarks ended the month mostly in the red due to volatile oil prices, discouraging quarterly reports and mixed economic data. Moreover, doubts over the Fed rate hike and increasing possibilities of oil loan defaults weighed on the key U.S. indexes.

March

In the final month of the first quarter, the benchmarks made a remarkable rebound. Each of the key indexes finished the month with healthy gains and the S&P 500 experienced its highest percentage monthly gain since October. Strong gains in the energy, technology and materials sectors, reduced rate hike fears and an upward movement in oil prices emerged as the main reasons behind March’s rebound. While higher chances of a production freeze were the main catalysts to the oil price rise in March, the Federal Open Market Committee’s decision to keep the key interest rate unchanged and its forecast that the number of rate hikes this year will be two instead of four also favored investor sentiment.

Mutual Fund Performance in Q1

In line with the major benchmarks, the U.S. based mutual funds also witnessed a significant rebound in the second half of the first quarter. As mentioned earlier, safe-haven mutual fund categories emerged as the clear winners during the quarter on the back of heightened uncertainty in the first half.

According to Morningstar, equity precious metals and utility funds clearly outperformed the others in the sector equity categories, while health care funds were the worst performers during the quarter. Equity precious metals and utility funds returned 40.7% and 11.4% during the quarter, respectively, while health care funds lost 13.3%.

Out of the 14 categories, only three finished the quarter in the red. A surge in the volatility level earlier this year forced investors to move their money from the risky sectors to the comparatively less risky ones such as precious metals, mainly gold, and utility. Moreover, fixed income producing funds including taxable bond and municipal bond funds also remained on investors’ radar during the quarter.

Among the taxable bond fund categories, the long-term government category returned 6.9% during the quarter and was the best performer in this segment. Separately, the high yield category, which returned 2% in the first quarter, was the top performer among the municipal bond fund categories. Meanwhile, funds investing in the undervalued securities clearly outperformed the blend and growth categories. Large-cap value, mid-cap value and small-cap value funds returned 1.3%, 2.4% and 2.2%, respectively.

Top Performing Best-Ranked Funds

In this section, we have highlighted the top five Zacks Mutual Fund Rank #1 (Strong Buy) funds of the first quarter of 2016. These funds also have minimum initial investment within $5000, expense ratios below 1%, net assets over $50 million and no sales load.

Banking on these fundamentals, we expect these funds to outperform their 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 also on the likely future success of the fund.

Fidelity Select Gold (FSAGX) focuses on acquiring common stocks of firms involved in exploration, mining, processing, or dealing in gold, or to a lesser degree, in silver and other precious metals.

The product returned 41% during the first quarter. Annual expense ratio of 0.90% is lower than the category average of 1.44%.

American Century Utilities Investor (BULIX) uses qualitative and quantitative management techniques to invest the major portion of its assets in equities related to the utility industry.

The fund returned 16.7% during the first quarter. Annual expense ratio of 0.67% is lower than the category average of 1.25%.

Fidelity Select Telecommunications Portfolio (FSTCX) invests a large chunk of its assets in common stocks of companies involved in operations related to communications services or communications equipment.

The product returned 9.7% during the first quarter. Annual expense ratio of 0.82% is lower than the category average of 1.44%.

T. Rowe Price New Era (PRNEX) invests at least 75% of its assets in common stocks of growth-oriented companies from the natural resource domain.

The fund returned 8.5% during the first quarter. Annual expense ratio of 0.67% is lower than the category average of 1.45%.

Vanguard Energy Investor (VGENX) invests the lion’s share of its assets in securities of companies engaged in operations related to the energy sector.

The product returned 7.8% during the first quarter. Annual expense ratio of 0.37% is lower than the category average of 1.52%.

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. Pick the best mutual funds with the help of Zacks Rank.


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