Finding the best mutual fund to protect and grow your hard-earned retirement savings can take a little skill and, it might sometimes seem, a lot of luck. Do you put your trust in the latest hot stock picker or seek out superior long-term returns?
The IBD Best Mutual Fund Awards, just released for 2017, let you look for both at one time. The awards recognize top-notch funds that beat benchmark indexes in both short- and long-term comparisons. To make the cut, a mutual fund had to outperform in each of the last one-, three-, five- and 10-year periods, through Dec. 31, 2016.
Whether you’re looking for a new fund for your retirement plan or wondering how the funds you now own stack up, the list can help you create and maintain a high-performance portfolio.
The top five funds in each category ranked by 10-year performance are singled out for special recognition.
Being a four-time winner is a herculean task. Among 2,813 mutual funds of all kinds that met the criteria of having at least $100 million in assets and 10 years of operation, only 410 beat their benchmark in each period.
Of 1,104 U.S. diversified stock mutual funds in business for the entire decade tracked by Morningstar Inc., only 44 prevailed as four-time winners.
Among 470 growth mutual funds, nine emerged as award winners.
The S&P 500’s 11.96% gain in 2016 was a difficult hurdle for actively managed growth funds. Many funds’ investment styles didn’t play well during the early-year sell-off spawned by worries about a sputtering economy, or later during the June Brexit vote sell-off or November election volatility.
Blend funds and value funds made big improvements. Blend funds turned in 22 winners vs. 10 last year and value funds paraded 20 funds in the winner’s circle vs. three last year.
Coasting To Victory?
In some categories, beating the benchmark was easy. Out of 428 international stock funds, 129 beat their benchmark, the MSCI EAFE. That was a 30% victory rate. The subdued performance of the EAFE index in 2016, which gained just 1%, made for a low bar for managers to clear.
Whether you are looking for mutual funds to strengthen your current portfolio or just starting out, the IBD Best Mutual Funds Awards list is a great place to begin. You can pick among the funds to build core positions in your diversified retirement portfolio. International stock funds, sector funds and bond funds can help you add weight to parts of your portfolio where you want extra emphasis.
Before buying remember to check which choices make the best fit in terms of your investment horizon and risk tolerance.
You can build your investment profile using a financial advisor or forms provided by major fund companies such as Fidelity, Vanguard and T. Rowe Price (TROW) as well as brokers such as Charles Schwab (SCHW), TD Ameritrade (AMTD), and E-Trade (ETFC). You can get key fund information from fund prospectuses, quarterly reports and manager commentaries.
What if a fund you own is not one of the award winners?
You may decide to keep it if it’s a perfectly good fund run by competent portfolio managers and it fits a unique need of your portfolio. Consider whether it outperformed its benchmark in most periods but narrowly missed in one or two.
Some 135 U.S. equity funds came close to winning IBD Best Mutual Funds Award status. They failed to outperform in just one of the four time periods.
This year’s winner lists differ a lot from last year’s. Many great new funds surfaced. Quite a few relatively new funds made their mark this year.
Strength In Young Funds
Fourteen younger U.S. equity funds topped the bogey over one, three and five years but weren’t old enough to have 10-year records. Ninety-two funds in all categories that were less than five years old outperformed in one and three years.
It was tough for funds from last year to repeat as winners. Take the U.S. diversified stock fund category. Last year, 101 funds beat the S&P 500 in all four time periods.
Of the 49 that managed that feat this year after a tough 2016, a mere four are repeat winners.
Some categories were especially hard hit. Growth funds, value and small caps each had zero repeat winners. Midcaps and muni bond funds each managed to return just a single champ to the award winners’ ranks.
Blend, international stock and international bonds funds each managed to squeak just two 2016 winners to this year’s lists.
U.S. bond funds had the most success in returning titleholders to the award winners roster. One hundred fifty-nine of them distinguished themselves as four-time winners. And 14 of those were winners last year too. Their benchmark is the Bloomberg Barclays U.S. Aggregate Bond Index.
The stumbling block that prevented so many funds from returning to the best-of-the-best lists and kept many funds from making their debuts was the topsy-turvy 2016 market.
This year’s winners had to be nimble enough to avoid stumbling in last year’s wild and woolly steeplechase.
Just because last year’s winners didn’t earn awards this year doesn’t mean they no longer deserve to stay in your portfolio. Take a good look at the funds and see how much they underperformed their benchmark. Find out if there has been a change in fund managers or investing strategy. Watch to see if their relative performance improves.
What’s the secret to consistent outperformance? For Gary Miller, lead manager of $8.2 billion Victory Sycamore Established Value Fund (GETGX) — this year’s top winner in the value category — one key was unwavering focus on bottom-up stock picking.
Dare To Differ
To beat the benchmark, you can’t imitate it. “This means emphasizing the merits of the company-specific dynamics and the willingness to build a portfolio that looks considerably different from the benchmark,” Miller said.
And then have the market move in your favor.
The market in 2017 will produce a new crop of best performers. Whether or not the latest winners will repeat, many by virtue of their proven ability to perform over the long term could be excellent choices for your retirement account.
Take $3.7 billion Parnassus Endeavor (PARWX), the No. 1 fund in our U.S. diversified equity category. Its top holding is Micron Technology (MU). After last week reporting an 8,900% leap in second-quarter earnings — rising from 1 cent a share to 90 cents a share — the memory chip maker gapped up on Friday, putting it up 171% for the past 12 months. Sales mushroomed 58% year-over-year. That stock has helped power the fund up 26% in that span.
Or check out $1.3 billion Champlain Small Company (CIPSX), tops in our small-cap category. Blackbaud (BLKB) was a top four holding as of Feb. 28. The company makes finance management and administration software for nonprofit companies. Sporting a stellar 95 Composite Rating from IBD, shares are up 26% over the past 12 months.
The Composite Rating, which starts at 1 and runs to 99, combines IBD’s five performance ratings. Stocks poised to move higher often have a Comp Rating of 95 or higher.
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View more information: https://www.investors.com/etfs-and-funds/mutual-funds/ibds-best-mutual-funds-2017-awards/