5 Top No-Load Mutual Funds to Build a Solid Portfolio

Wall Street continues to be optimistic as traders expect the Federal Reserve to end the rate hike spree. However, Fed Chairman Jerome Powell suggested that the central bank will act according to month-on-month data and will likely raise interest rates this year.

Inflation for the month of April was recorded at 4.9%, which was still two times higher than the Fed’s long-term inflation expectation. Currently, the interest rate is in the range of 5.00-5.25%, pushing borrowing costs to a 16-year high.

The U.S. labor market remains strong as payroll employment added more than 300,000 jobs in May. Personal income, as well as disposable personal income, also increased by 0.4% in the same period. With additional disposable income available in the pockets of average Americans, one can opt for no-load mutual funds. These passively managed funds don’t have any commission fees, or any other charges for buying and selling that are generally associated with actively managed funds.

The sales charges — referred to as a “front-end load,” which is charged upon purchasing shares or “back-end load,” which is charged upon the selling of shares — are absent in such funds because the shares are distributed directly by the investment company, instead of any third-party involvement like broker, advisor, or another type of professional. Even a few additional basis points saved in fees can boost the overall return by minimizing expenses. However, charges like the fund’s expense ratio, 12b-1 fees for marketing, distribution, and service, redemption fees, exchange fees, and account fees are commonly charged even if there is no load.

The load charges are generally within the range of 0-6%. To understand the math, let’s assume an investor wants to invest $1000 in a mutual fund that has a 5% entry and exit load. Then, $950 [$1000 – $50 (5% of $1000)] is left with the mutual fund house to invest. Now, let’s assume the fund has given a 15% return over the year. So, the current value of the portfolio is $1092.5 [$950 + $142.5 (15% of $950)]. Now, when an exit load of 5% is applied, the investor is left with $1037.87 [$1092.5 – $54.63 (5% of $1092.5)].

According to the above hypothesis, the return earned by the investor with front and back load is 3.78%, whereas he could have enjoyed a much higher return without load.

Wise investors looking for higher returns can consider no-load mutual funds as it has a low expense ratio, which can translate into higher returns along with other factors like the fund’s performance history, investment style, risk tolerance, etc.

We have thus selected five No-Load mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, and carry a low expense ratio. Notably, mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Semiconductors Portfolio FSELX invests most of its net assets in common stocks of domestic and foreign companies that areprincipally engaged in the design, manufacture, or sale of semiconductors and semiconductor equipment. FSELX chooses to invest in stocks based on fundamental analysis factors such as each issuer’s financial condition and industry position, and market and economic conditions.

Adam Benjamin has been the lead manager of FSELX since Mar 16, 2020. Most of the fund’s exposure is in companies like NVIDIA (24.56%), NXP Semiconductors (9.15%) and On Semiconductors (8.21%) as of 2/28/2023.

FSELX‘s three-year and five-year annualized returns are nearly 33.3% and 24.7%, respectively. FSELX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.69%, which is less than the category average of 1.05%.

To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

BNY Mellon Natural Resources Fund DLDRX invests most of its assets along with borrowings, if any, in common stocks of domestic and foreign natural resources and natural resources-related sectors companies irrespective of the market capitalization. DLDRX also invests in emerging markets securities with similar economic characteristics.

Albert Chu has been the lead manager of DLDRX since Oct 30, 2019, and most of the fund’s exposure is in companies like Freeport – Mcmoran (4.94%), Occidental Petroleum (4.63%) and Hess (4.60%) as of 3/31/2023.

DLDRX’s three-year and five-year annualized returns are 31.3% and 10.0%, respectively. DLDRX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.89%, which is less than the category average of 1.11%.

Invesco Small Cap Value VSMIX invests most of its assets along with borrowings, if any, in common stocks of small-capitalization companies, and in derivatives instruments with similar economic characteristics. VSMIX advisors choose to invest in companies, which according to them, are undervalued.

Jonathan Edwards has been the lead manager of VSMIX since Jun 25, 2010, and most of the fund’s exposure is in companies like Northern Oil & Gas (2.63%), Vertiv Holdings (2.35%) and Aecom (2.26%) as of 1/31/2023.

VSMIX’s three-year and five-year annualized returns are 28.7% and 8.7%, respectively. VSMIX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.83% compared to the category average of 1.16%.

Victory Integrity Small/Mid-Cap Value Fund MIRSX invests most of its net assets in equity securities of small to mid-cap companies and in foreign securities such as American Depositary Receipts and Global Depositary Receipts. MIRSX advisors consider small to mid-cap companies as those that have market capitalization similar to those listed on the Russell 2500 Index.

Daniel G. Bandi has been the lead manager of MIRSX since Jul 1, 2011, and most of the fund’s exposure is in companies like Synovus Financial (1.34%), First Industrial Reality (1.16%) and Prosperity Bancshares (1.16%) as of 12/31/2022.

MIRSX’s three-year and five-year annualized returns are 19.6% and 5.9%, respectively. MIRSX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.83% compared to the category average of 1.01%.

Vanguard Global Capital Cycles Fund VGPMX seeks above-average compounded return by investing most of its net assets in equity securities of companies and industries with declining capital expenditure and unique business models which cannot be easily replicated. VGPMX advisors invest in companies of domestic and foreign companies irrespective of their market capitalization and sectors.

Keith E White has been the lead manager of VGPMX since Jul 27, 2018, and most of the fund’s exposure is in companies like Barrick Gold (10.31%), American Electric Power (6.64%) and BWX Technologies (4.81%) as of 1/31/2023.

VGPMX’s three-year and five-year annualized returns are 18.9% and 5.8%, respectively. VGPMX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.43% compared to the category average of 1.07%.

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