The Best Mutual Funds to Buy for the Rest of 2015

These seven mutual funds can beat the markets through 2015's second half ... and power your portfolio for years to come

The first half of 2015 was weak to slightly negative for mutual funds investing in broad market indices, such as the S&P 500 index and the Barclays Aggregate Bond Index.

best mutual funds
Source: flickr.com/Will McGugan

That trend is likely to continue in the second half of the year.

Therefore, the best mutual funds for the rest of 2015 will likely be those funds that invest in specific sectors, or those that step outside the mainstream of large domestic stocks and U.S. Treasuries.

But don’t worry — you won’t need to buy anything too alternative or exotic to capture gains through year’s end.

If you’re hunting down the best mutual funds, you will have to tread carefully. After all, investors are staring down a strong U.S. dollar, the likelihood of an interest-rate hike (or two) later this year and the usual downside pressure from seasonality concerns that will pop up in a few months.

So the game is minimizing risk while maximizing returns. Not an easy task, but we’ll help you out. Here are seven of the best mutual funds you can hold for the rest of 2015 — and as a note, all of them are load-free, so you’ll only be paying regular fund expenses.

Best Mutual Funds for 2015’s Second Half: Fidelity Small Cap Enhanced Index Fund (FCPEX)

Best Mutual Funds for 2015's Second Half: Fidelity Small Cap Enhanced Index (FCPEX)Expenses: 0.67%, or $67 annually for every $10,000 invested
Minimum Initial Investment: $2,500

Small-cap stocks are beating the pants off their larger-cap brethren this year, and Fidelity Small Cap Enhanced Index Fund (FCPEX) is an outstanding choice to ride that trend through the rest of the year.

After all, the strong U.S. dollar will continue to weigh heavily on large-cap, multinational stocks for the foreseeable future, but small-cap stocks can continue growing in this year’s moderately healthy U.S. economy.

The “enhanced” approach employed by FCPEX means it normally invests at least 80% of assets in stocks in the Russell 2000 index, but it will use computer-aided, quantitative analysis to select stocks that may have the potential to provide a higher total return than that of the Russell 2000. Top holdings right now include Jack In the Box (JACK) and Jet Blue Airways (JBLU).

This approach is working well this year, as evidenced by a 7.6% year-to-date gain, which compares to 3% for the S&P 500 and 4.7% for the average small blend category fund. Long-term performance also consistently ranks in the top 10% to 20% of category peers.

Best Mutual Funds for 2015’s Second Half: Vanguard European Stock Index Fund (VEURX)

Best Mutual Funds for 2015's Second Half: Vanguard European Stock Index (VEURX)Expenses: 0.26%
Minimum Initial Investment: $3,000

Although the Greek debt saga continues to drag out and weigh on global stocks, the best place in the world to invest in 2015 may be Europe — and Vanguard European Stock Index Fund (VEURX) is one of the best mutual funds you can buy to cover that region.

Vanguard European tracks the FTSE Developed Europe Index, which captures nearly the entire European stock market. Even with the Greece debt crisis hanging over Europe, VEURX is up more than 7%year-to-date, closely tracking Europe stocks in the aggregate.

For the remainder of 2015, a strong U.S. dollar will help pad profits of the large exporting firms in Europe. VEURX holds mostly stocks of strong, developed countries — such as Germany, Switzerland and the United Kingdom. Top holdings in VEURX having a strong 2015 include Novartis (NVS), BP (BP), and Bayer (BAYRY).

Best Mutual Funds for 2015’s Second Half: Vanguard Health Care Fund (VGHCX)

VanguardExpenses: 0.34%
Minimum Initial Investment: $3,000

A good way to beat the slow-moving major market indices in 2015 is with a sector fund — and right now, I like Vanguard Health Care Fund (VGHCX).

VGHCX isn’t overly exposed to the hot health subsector of biotechnology stocks, but for better or for worse, that’s just the point of holding Vanguard Health Care. While biotechs are crushing the market right now, they’re also extremely vulnerable to a broader-market pullback. Instead, by investing in VGHCX, you get a more balanced approach to a sector that’s being lifted by a number of mega-trends.

Also, it doesn’t hurt to be one of the cheapest sector funds in the industry with an experienced manager like Jean M. Hynes, who helped manage under the legendary Edward P. Owens for more than four years before taking the helm of VGHCX in 2012.

Top holdings in the Vanguard Health Care portfolio include big pharmaceutical companies, such as Bristol-Myers Squibb (BMY) and Actavis (ACT), and managed care firms like UnitedHealth Group (UNH).

Best Mutual Funds for 2015’s Second Half: T. Rowe Price Financial Services Fund (PRISX)

Best Mutual Funds for 2015's Second Half: T. Rowe Price Financial Services (PRISX)Expenses: 0.91%
Minimum Initial Investment: $2,500

Financial services firms, especially banks, stand to benefit from rising interest rates, and T. Rowe Price Financial Services Fund (PRISX) is an outstanding fund for this reason (and many others) for 2015 and beyond.

Rising interest rates allow banks to expand their profit margins on services like mortgages loans and other types of lending. Also, brokerage firms and the financial services industry in general can also benefit from a growing economy and the larger asset bases that usually accompany rising rates.

Although lead manager Gabriel Solomon has only been at the helm of T. Rowe Price Financial Services for a little more than a year, his stellar one-year gain of 15.7% beats 99% of all financial sector funds. Year-to-date, PRISX is up 7.7% which beats more than 80% of category peers and smashes the 2.8% on the S&P 500.

Top holdings for PRISX unsurprisingly include Citigroup (C), JPMorgan Chase (JPM) and Bank of America (BAC).

Best Mutual Funds for 2015’s Second Half: Fidelity Growth Company Fund (FDGRX)

Best Mutual Funds for 2015's Second Half: Fidelity Growth Company (FDGRX)Expenses: 0.82%
Minimum Initial Investment: $2,500

Growth stocks stand to trump value stocks and large-cap index funds for the remainder of 2015, and Fidelity Growth Company Fund (FDGRX) is an outstanding fund to capture gains in growth leadership.

When entering the latter phase of the business cycle, growth stocks tend to take the lead, and we’re seeing this play out in 2015. FDGRX is up nearly 8% year-to-date, which is not just well ahead of the S&P, but significantly higher than the average large growth fund gain of 4.7%.

The biggest factor in Growth Company’s success — in addition to below-average expenses and Fidelity’s deep analyst team — is manager Steven S. Wymer, who has been in the driver’s seat for 18 years. That predates the dot-com bust and spans two subsequent recessions and bear markets since then.

Whether you look at short-term performance or long-term performance, Wymer and FDGRX has completely dominated the large growth category.

Top holdings include Apple (AAPL), Salesforce.com (CRM) and Facebook (FB).

Best Mutual Funds for 2015’s Second Half: Vanguard Total Stock Market Index Fund (VTSMX)

Best Mutual Funds for 2015's Second Half: Vanguard Total Stock Market Index (VTSMX)Expenses: 0.17%
Minimum Initial Investment: $3,000

None of us really knows what will happen in the second half of 2015, so the best humility play is to stick with a solid core holding that can edge out the S&P 500 in the short term and in the long term.

That fund is Vanguard Total Stock Market Index Fund (VTSMX), a collection of roughly 3,800 stocks, large, mid- and small, across every sector in the market.

VTSMX likely will beat the S&P 500 because of its exposure to small- and mid-cap stocks, which are leading the large- and mega-cap stocks in the S&P 500.

For evidence of short-term leadership in 2015, look no further than the year-to-date gain of 3.6% for VTSMX versus 3% on the S&P 500. Going long, the 10-year annualized return for VTSMX is 8.2% and the S&P 500 is at 7.9%.

This edge over the S&P 500, combined with the rock-bottom expense ratio, explains why Vanguard Total Stock Market Index is the biggest mutual fund in the world.

Best Mutual Funds for 2015’s Second Half: Vanguard Intermediate-Term Bond Index Fund (VBIIX)

Best Mutual Funds for 2015's Second Half: Vanguard Intermediate-Term Bond Index (VBIIX)Expenses: 0.2%
Minimum Initial Investment: $3,000

Staying on the theme of mutual funds that can edge out the major indices in 2015 and for the long term, Vanguard Intermediate-Term Bond Index (VBIIX) does the job in the bond asset category.

With short-term bonds yielding almost nothing and long-term bonds carrying too much interest-rate sensitivity, core bond holdings like Vanguard Total Bond Market Index (VBMFX) can fall behind funds that invest in the sweet spot of intermediate-term bonds, which can kick off decent yields without excessive market risk.

Year-to-date, VBIIX is up 0.61%, whereas the Barclays Aggregate Bond Index is roughly flat. The edge on the benchmark also extends long-term, as evidenced by the 10-year annualized return 5.3% for VBIIX compared to 4.5% for the index. That’s a slight edge in absolute terms, but a huge lead in the fixed income world.

As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. However he holds VTSMX and VBMFX in some client accounts. His No. 1 holding is his privately held investment advisory firm. Under no circumstances does this information represent a recommendation to buy or sell securities.

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