Buy These 4 Top-Performing Mutual Funds of Q1

U.S. financial markets have come a long way since a disappointing fourth quarter, thanks to Fed’s new-found dovishness, lower inflation data and encouraging developments in U.S.-China trade talks.

Frozen Rates Put a Floor Under Equities

U.S. financial markets have rebounded sharply in the first quarter after a steep sell-off late last year. The broader S&P 500 Index and Dow Jones Industrial Average registered 13.1% and 11.2%, respectively, in the first quarter after reaching their lowest point in December since 1931.

This rebound was largely staged by the Fed’s no-rate-raise decision in January. The central bank decided to freeze rate hikes (currently in the range of 2.25-2.50%) amid growing concerns over slowing global growth.

Fed’s accommodative stance contributed to U.S. equities concluding their best quarter in a decade. The central bank’s policy eased investor fears over a slowing global economy to a large extent.

In addition, Fed’s dovish approach was followed by friendly monetary policies by other central banks worldwide. This helped to put a floor under stocks, stopping them from posting severe losses in Q1.

Lower Inflation, Trade Deal Optimism Boost Markets

Fed’s friendly policy is supported by muted near-term inflation, which is also impacting financial markets positively. The Consumer Price Index (CPI) increased 0.2% on a seasonally adjusted basis in February after remaining unchanged for three months, per the Bureau of Labor Statistics.

Also, the core consumer price index, which excludes food and energy, rose 0.1% from January. Both gauges for inflation were under Fed’s objective of 2%, thus deeming stronger the no-rate-hike scenario.

The anticipation of a favorable trade deal between the United States and China is also acting as a catalyst for markets. Investors are banking on a trade agreement in the near term, which is boosting their investments in stocks and mutual funds.

In fact, inflows in U.S. mutual funds have grown over the past few weeks over this new-found optimism. Mutual fund inflows were $36.7 billion in January and $29.2 billion in February, Boston-based research firm Cerulli Associatescited. The firm also noted that U.S. mutual fund assets grew 9% in the first two months of 2019. (Read More)

Other Impressive Factors That Boosted Q1 Performance

Certain macroeconomic factors affected U.S. financial markets as well. To be specific, higher oil prices, China’s improving economy and decent fourth-quarter earnings eased investor fears greatly.

First, oil prices marched higher in the first quarter on the back of tight supply and trade-deal optimism, marking its biggest first-quarter gains in nearly 10 years. Per a Reuters report, Brent Crude for June delivery rose 27% and U.S. West Texas Intermediate futures increased 32% in the first quarter.

Secondly, China’s reviving economy is particularly boosting U.S. markets. China’s government, in a bid to stimulate its slowing economy amid global growth fears, pushed 560 billion yuan (about $83 billion) into its banking system, a CNBC report cited.

Lastly, fourth-quarter earnings were not as bad as markets had expected. Earnings grew 13.4% in 2018 Q4. (Read More)

Our Choices

Given the impressive factors that boosted markets in the first quarter and still continue to do so, we have selected a few mutual funds that have posted striking gains on a year-to-date basis. You could consider adding these to your portfolio.

These funds carry a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5,000.

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 the past performance but also on the likely future success of the fund.

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).

Fidelity Select Defense & Aerospace Portfolio FSDAX aims for capital growth by mostly investing in common stocks. The non-diversified fund invests the majority of its assets in securities of companies that operate in the defense and aerospace industries.

This Sector – Other product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSDAXhas a Zacks Rank #1 and an annual expense ratio of 0.76%, which is below the category average of 1.19%. The fund has year-to-date return of 22.7%. FSDAXhas returned 24.4% and 14% in three and five-year periods, respectively.The fund has a minimum initial investment of $2500.

AB Discovery Growth Fund Advisor Class CHCYX seeks long-term capital appreciation. The fund invests a minimum of 80% of its assets in equity securities of small- and mid-cap companies. The fund mostly invests in a diversified portfolio of equity securities that have comparatively smaller capitalization in the overall U.S. market.

This Sector – Mid Cap Blend product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

CHCYXhas a Zacks Rank #1 and an annual expense ratio of 0.72%, which is below the category average of 1.19%. The fund has year-to-date return of 22.7%. CHCYXhas returned 22.5% and 9.6% in the three and five-year periods, respectively.The fund has no minimum initial investment.

Hartford Small Company HLS Fund Class IA HIASX aims for capital appreciation and seeks to invest in common stocks that help it achieve its objective. The fund invests the majority of its net assets in common stocks of small-cap companies.

This Sector – Small Cap Growth product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

HIASXhas a Zacks Rank #1 and an annual expense ratio of 0.78%, which is below the category average of 1.20%. The fund has year-to-date return of 22.3%. HIASXhas returned 20.9% and 7.3% in three and five-year periods respectively.The fund has no minimum initial investment.

Fidelity Select Energy Service Portfolio FSESX aims for long-term capital appreciation by investing primarily in companies that operate in the field of energy service. The non-diversified fund mostly invests in common stocks. The fund may invests in U.S. and non-U.S. companies alike.

This Sector – Energy product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSESXhas a Zacks Rank #1 and an annual expense ratio of 0.84%, which is below the category average of 1.38%. The fund has year-to-date return of 22.2%.The fund has a minimum initial investment of $2500.

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 >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Get Your Free (CHCYX): Fund Analysis Report
 
Get Your Free (FSESX): Fund Analysis Report
 
Get Your Free (HIASX): Fund Analysis Report
 
Get Your Free (FSDAX): Fund Analysis Report
 
To read this article on Zacks.com click here.