4 Low-Beta Funds to Counter Rising Market Uncertainties

This post was originally published on this site

Major indexes ended the week (ending Sep 10) in the negative territory, with the Dow closing lower for the second consecutive week, down 2.2%. The S&P 500 closed in the red (1.7% lower for the week) throughout the week, its longest losing streak since Feb 22, while the Nasdaq declined 1.6% in the week.

Load Error

Now, there are multiple factors weighing on investors’ sentiments. One of the major factors is the coronavirus pandemic. The virus scare has become a hurdle for the U.S. economy that is trying all means to bounce back. Per the New York Times tracker, as of Sep 10, the country is averaging just under 150,000 new cases a day, with only 53% of its population fully vaccinated.

President Joe Biden has issued a fresh round of additional vaccine mandates for federal workers. He has also pushed the mandate for employees of government contractors. Per the notice, a vaccine mandate has been placed for millions of federal government workers along with the directive sent to the US Department of Labor. All private businesses with 100 or more staff will have to mandate vaccination or request proof of a negative coronavirus test from employees, at least once a week.

Biden’s vaccine mandate is a result of the surge in new cases due to the dominant strain of coronavirus, the Delta variant. Additionally, both the administration and the World Health Organization (WHO) are worried about the Mu variant that originated in Columbia and has spread to some South American and European countries. While new cases of the Mu variant remain significantly low, authorities are concerned that the strain is highly resistant to vaccines (per the study conducted in Japan, with minimum available data).

As the virus continues to pose a threat, investors are worried about the Federal Reserves’ decision to tapper stimulus. The Federal Open Market Committee is set to conduct its two-day policy meeting scheduled on Sep 21. The Fed will make decisions regarding scaling back of the $120-billion monthly bond buying program that it initially started during the pandemic to support economic recovery. Investors were spooked on Sep 9 after the European Central Bank reported that it would “moderately lower pace” of net asset purchases under the pandemic emergency purchase program.

Consumers, the backbone of the U.S. economy, have also shown signs of distrust on the economy’s recovery path. Earlier this month, the Conference Board reported that its Consumer Confidence Index slipped to 113.8 for August, lower than the consensus estimate of 123.1. August’s decline now puts consumer confidence at a six-month low and the Delta variant and surge in commodity prices remain prime concerns.

4 Mutual Fund to Buy

Given the current market scenario, it is advisable to invest in low-beta mutual funds. This is because such funds are theoretically less volatile than the market. Stocks in the portfolio of these funds are comparatively less risky as they incorporate utility stocks that often have low betas (tend to move more slowly than market averages). These funds also invest in government bonds and debt securities.

Hence, we have shortlisted four low-beta mutual funds that investors can pick during market gyrations. These mutual funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) and have encouraging year-to-date (YTD) returns. Additionally, the minimum initial investment is within $5000. We expect these funds to outperform peers in the future.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Vanguard Ultra-Short-Term Bond Fund Investor Shares VUBFX aims to provide current income while maintaining limited price volatility. The fund invests in a diversified portfolio of high-quality and, to a lesser extent, medium-quality fixed income securities. VUBFX has a three-year beta of 0.12.

This Zacks sector – Index has a history of positive total returns for more than 10 years. Specifically, the fund has returned 2.3% and 1.8% over the past three and five-year period, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

VUBFX has an annual expense ratio of 0.20% versus the category average of 0.44%.

Fidelity Floating Rate High Income Fund FFRHX aims for a high level of current income. The fund invests at least 80% of assets in floating rate loans, which are often lower-quality debt securities, and other floating rate securities. FFRHX has a three-year beta of 0.15.

This Zacks sector – High Yield-Bonds product has a history of positive total returns for more than 10 years. Specifically, the fund has returned nearly 4% and 4.4% over the past three and five-year period, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FFRHX has an annual expense ratio of 0.68% versus the category average of 1.03%.

T. Rowe Price Ultra Short-Term Bond Fund TRBUX aims for a high level of income consistent with minimal fluctuations in principal value and liquidity. The fund invests in a diversified portfolio of shorter-term investment-grade corporate and government securities. TRBUX has a three-year beta of 0.18.

This Zacks sector – Inv Grade Bond-Short product has a history of positive total returns for more than 10 years. Specifically, the fund has returned 2.5% and 2.2% over the past three and five-year period, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

TRBUX has an annual expense ratio of 0.68% versus the category average of 1.03%.

Vanguard Short-Term Federal Fund Investor Shares VSGBX aims for current income while maintaining limited price volatility. The fund invests at least 80% of its assets in short-term bonds issued or guaranteed by the U.S. government and its agencies and instrumentalities. VSGBX has a three-year beta of 0.23.

This Zacks sector – Govt Bond-Short product has a history of positive total returns for more than 10 years. Specifically, the fund has returned 3.4% and 1.9% over the past three and five-year period, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

VSGBX has an annual expense ratio of 0.20% versus the category average of 0.64%.

Want key mutual fund info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>

Continue Reading

Related Posts