With investing, as with most things in life, cost matters. Every dollar you pay in fees on your investments, is a dollar that isn’t going toward generating returns on your money. Fewer expenses mean higher earning power and more money in your pocket to invest.
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One often overlooked fee on some mutual funds is sales loads, or commissions paid to the advisor or broker who sells you the fund. Sales loads can be charged when you buy a fund, called front-end sales loads, or when you sell your shares, called back-end sales loads, and can be as high as 8.5% of your investment.
To keep costs low when investing in mutual funds, look for “no-load mutual funds,” which won’t have sales charges. However, some funds may have a sales load at certain brokers but not others, so it’s important to look closely before investing.
Note that even no-load mutual funds may still have expense ratios, which represent the amount of invested capital that goes toward running the fund. But these, too, can be minimized with savvy shopping.
What follows are seven of the best no-load mutual funds. Each has earned five stars and a gold badge from Morningstar, indicating that the company has the highest conviction that the funds will outperform their peer groups or benchmark over a market cycle.
— Schwab S&P 500 Index Fund (ticker: SWPPX)
— Parnassus Core Equity Investor (PRBLX)
— T. Rowe Price Dividend Growth (PRDGX)
— Thrivent Mid Cap Stock S (TMSIX)
— Dodge & Cox Income X (DODIX)
— T. Rowe Price Capital Appreciation (PRWCX)
— American Funds New World F-2 (NFFFX)
Schwab S&P 500 Index Fund (SWPPX)
SWPPX invests in approximately 500 of the best U.S. companies, following the S&P 500 as its benchmark. Information technology makes up about 26% of the portfolio’s sector weight, holding some of the Big Tech names in its top 10 holdings, including Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Alphabet Inc. (GOOG, GOOGL). Just be aware that the S&P 500 and funds that track it can be pretty top-heavy. Currently the top 10 names in SWPPX account for more than 30% of the fund.
With an expense ratio of only 0.02%, SWPPX is among the lowest in its peer group, according to Morningstar. For comparison, the average expense ratio on large-cap, no-load mutual funds is 0.8%.
SWPPX has a low portfolio turnover rate of about 1.68%, which means the fund follows a buy-and-hold strategy with lower fund expenses, making it best for the investor who prefers a low-cost, passive investment approach.
Parnassus Core Equity Investor (PRBLX)
“Parnassus Core Equity isn’t your typical large-blend Morningstar category offering, but it is top notch,” writes Morningstar analyst Stephen Welch.
As a company founded on socially responsible investing, all of Parnassus’ funds apply environmental, social and governance, or ESG, screens during investment selection. PRBLX is a large blend fund that focuses on high quality companies with “long-term competitive advantages and relevancy, quality management teams and positive performance on ESG criteria,” according to the firm’s website.
And don’t worry: ESG does not mean lower returns. PRBLX seeks to outperform the S&P 500 and has succeeded in doing so in four of the past five years. Since inception in 1992, the fund has returned nearly a full percentage point more than the S&P 500.
It isn’t the lowest cost of the bunch, coming in at about average for its peer group with a 0.82% expense ratio, but it is one of the best no-load mutual funds for sustainable investors. Morningstar gives it its highest sustainability rating of five globes. Note that there is a $2,000 minimum initial investment.
T. Rowe Price Dividend Growth (PRDGX)
Morningstar upgraded PRDGX from silver to gold in April thanks to increased confidence in its management team and consistent approach.
“Manager Tom Huber has masterfully steered this strategy since March 2000,” Welch writes. “His tenure stands out among peers and lands him in the large-blend Morningstar category’s most experienced decile.”
The fund targets stocks with a history of paying dividends and which the managers believe will increase their dividends over time, as they see regular dividend increases as a sign of a healthy company with growth prospects. The firm also believes dividends can increase total return over time while reducing overall volatility during turbulent markets.
PRDGX hasn’t always beat the S&P 500, but it has shown considerably more resilience during the bear market this past year, and it has managed to pull ahead on average since its inception in 1992.
“Over the past 10 years through March 2023, the fund’s downside capture ranks among the lowest of dividend-oriented peers,” Welch notes, adding that the strategy has also managed to “capture at least 90% of the upside during Huber’s tenure.”
It pays quarterly dividends with the most recent payment at the end of June for just over 21 cents per share. The current 30-day SEC dividend yield of 1.3% isn’t much to write home about, but has still maintained a dividend growth rate that averages 250 basis points above the S&P 500’s. Part of the reason the yield isn’t higher is that Huber isn’t one to forsake financial strength for the sake of yield.
“In times of heightened uncertainty, Huber emphasizes non-yield characteristics, including valuation, balance sheet strength and management, which provides diversification,” Welch says. “While this can reduce total yield, Huber believes it helps the portfolio participate more in the upside and has made the fund less volatile than its typical large-blend category peer.”
With an expense ratio of 0.64%, it falls solidly below the large-cap, no-load category average of 0.8%. There is a $2,500 minimum initial investment.
[See: 8 S&P 500 Stocks to Buy With the Most Upside.]
Thrivent Mid Cap Stock S (TMSIX)
Large-cap funds aren’t the only type to top the list of the best no-load mutual funds. TMSIX is a mid-cap fund that also earns five stars and a gold badge from Morningstar thanks to its strong management team and sound investment process.
“This fund looks to provide investors with consistent, competitive performance through favorable stock selection while monitoring risk,” according to the company’s website. To do this, it seeks out mid-sized companies, defined as those with market capitalizations between $306.4 million and $53 billion, of both growth and value persuasions. Companies are evaluated on fundamental, quantitative and technical criteria to find firms with positive economic outlooks and strong growth prospects in terms of sales and earnings. TMSIX’s managers also pay attention to companies’ management teams and financial positions.
Currently, 59 companies fit that bill, with specialty insurance company Kinsale Capital Group Inc. (KNSL) and home construction company NVR Inc. (NVR), topping the list but also more familiar names like Chipotle Mexican Grill Inc. (CMG) included in the top 10.
The expense ratio of 0.75% is well below the average for mid-cap no-load funds at 0.99%, according to Morningstar. There is a $2,000 minimum initial investment.
Dodge & Cox Income X (DODIX)
Investors who want to add fixed income to their portfolios may like DODIX. Designed to be a core fixed-income fund, DODIX provides diversified exposure to investment-grade bonds issued by governments, municipal agencies and corporations, as well as mortgage and asset-backed securities.
“This strategy’s success owes to its relatively patient and at-times contrarian approach to investing,” writes Morningstar senior analyst Sam Kulahan. “They tend to favor corporates, noting that the yield advantage these securities offer is an important contributor to total returns over time, and they run a fairly compact, mostly cash-bond portfolio.”
The fund uses the Bloomberg U.S. Aggregate Bond Index as a benchmark, but the managers aren’t afraid to deviate from this in their active management. This can be seen in the credit quality and sector deviations between the two. For example, DODIX is about 55% AAA-rated bonds compared to nearly 73% in the index. DODIX also holds almost 8% BB-rated bonds and 2% B-rated bonds, while the index doesn’t drop below a BBB rating. DODIX also leans far heavier on securitized assets and corporate bonds than the index.
You won’t pay much of a premium for this active management, however, thanks to the fund’s below average expense ratio of 0.41% relative to the category average of 0.46%, according to Morningstar. It also offers a sweet 4.59% SEC yield with distributions four times per year.
T. Rowe Price Capital Appreciation (PRWCX)
Morningstar associate director Adam Millson calls PRWCX’s lead manager, David Giroux, “one of the industry’s best.”
In his 17 years managing the fund, Giroux has “displayed an innate ability to opportunistically invest across both equities and bonds, capturing pockets of value through strong stock selection and impressively timed asset-allocation tilts,” Millson writes. “His execution of this strategy’s nimble, contrarian approach has delivered topnotch returns for its investors.”
PRWCX’s value investment strategy to prevent sharp declines leads to a moderate portfolio of just more than 65% stocks, mostly from U.S. companies, and nearly 30% bonds, also mostly U.S. issuers.
It has been the top-performing moderate allocation fund over the past 15-, 10- and five-year periods, according to Morningstar. It has also left the Morningstar U.S. Moderate Target Allocation index in the dust over the same time period. Its expense ratio of 0.72% is on the lower end of average for its Morningstar category.
American Funds New World F-2 (NFFFX)
Emerging markets, or developing economies, are known for being riskier than more well-established nations, but NFFFX offers investors a less volatile way to gain exposure to these growing economies. It achieves this by combining emerging market stocks with more well-established companies in developed nations. Examples include Microsoft and $443 billion LVMH Moet Hennessy Louis Vuitton (LVMUY).
So NFFFX isn’t purely an emerging markets fund. As of March 31, nearly half the portfolio was invested in U.S.- and European-based assets. Emerging markets account for just under 41% of the portfolio.
“As the U.S. market has outpaced others, this has helped the fund land in the top decile of peers over the past 10 years,” Welch writes. “However, the presence of multinationals can also hold the strategy back when emerging markets outperform.”
Overall, NFFFX is a solid option if you want a temperate dose of worldwide exposure. The approach “tends to reduce volatility, helping the strategy deliver superior downside protection in most market pullbacks since its inception, a key reason for those top-decile returns,” Welch writes. And it does this for far less than its emerging market fund peers at 0.68% compared to 1.18% on average, according to Morningstar.
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7 Best No-Load Mutual Funds originally appeared on usnews.com
Update 07/10/23: This story was published at an earlier date and has been updated with new information.
