We are in a world where economies globally are just starting to show green shoots of recovery. As a result, many central bankers have either already revised their monetary policy to respond to this changing situation or are thinking of doing so. Central banks in North America (notably Canada and the U.S.) have also started gradually increasing interest rates.
In terms of a lift to investments, the broad market seems to be participating in the recovery. In an environment such as this, mutual funds make great building blocks for creating stable and structurally-sound portfolios. Let’s take a look at why.
It’s highly unlikely that portfolio managers and investors will ever see pre-2009 market conditions for a long time to come. However, stability in global economies has started to encourage investor confidence. Money-managers and individual investors, who have been sitting on the sidelines, are now starting to look for opportunities to deploy their reserves. And mutual fund portfolios offer them such opportunities:
· With just a handful of carefully selected mutual funds, you can build a portfolio that can withstand any market condition
· Through a single fund, you can own hundreds of individual stocks
· Individually tailored funds can give your portfolio targeted exposure to sub-sectors that you like
· Rather than buy/sell hundreds of individual names, and incur exorbitant trading fees, low-cost mutual funds are a cost-effective way to participate in the market
Coupled with the above, you can also pick from an array of strategic, tactical, actively-managed and passive or Indexed funds, which make them a mutually beneficial tool (for investors, fund managers and fund sponsors) through which to build short, intermediate and longer-term goal-oriented portfolios.
Given this backdrop, lets take a look at two mutual funds that would fit our criteria. The two ideas provide you the opportunity to either add specific market segment exposure to your portfolio, or to build a core holding using a more broadly-diversified fund.
1) Fidelity® Select Consumer Staples Portfolio (MUTF:FDFAX)
With an Expense Ratio of just 0.76%, FDFAX offers broad exposure to the consumer staples sector in a mutual fund-based portfolio. It includes stable, blue chip names like Procter & Gamble Co (NYSE:PG), The Coca Cola Co (NYSE:KO), Mondelez International Inc (NASDAQ:MDLZ) among its top-10 holdings. Given that the latest package of tax relief measures is expected to put more discretionary-spending money into the pockets of individuals and families in the coming months and years, investing in FDFAX now might not be a bad idea.
Over a 1, 3, 5 and 10-year horizon, FDFAX has more than adequately rewarded investors with returns of 12.06%, 5.58%, 10.47% and 8.38% respectively. These are returns that yield-hungry investors with moderate risk would be more than happy to accept.
A word of caution though: If you are particularly averse to owning “sin stocks” in your portfolio, you need to be aware that some of the components of FDFAX include such stocks as Philip Morris International Inc. (NYSE:PM) and Altria Group Inc (NYSE:MO).
2) Vanguard 500 Index Fund Investor Shares (MUTF:VFINX)
If your portfolio building strategy calls for just owning a broad segment of the market, instead of zeroing in on specific sub-segments, then Vanguard’s low-cost VFINX might be just the vehicle for you. Supporting an expense ration of just 0.14%, which is 86% lower than most competing products with equivalent holdings, VFINX provides a convenient way to gain exposure to 500 of the biggest U.S names across multiple industries.
Given that the U.S is one of the most actively-traded global markets today, and one that is likely to see more growth (compared to other parts of the world) in the coming years, VFINX may be just what you want to own today, to position your portfolio for 2018 and beyond.
Over the last 10 years, VFINX has closely tracked its underlying benchmark (as mutual funds are designed to do), the S&P 500 Index, yielding investors a healthy 11%+ since inception. Given that the U.S economy is firing on all cylinders, VFINX is a great core holding for any mutual fund portfolio builder that’s willing to tolerate modest levels of risk.