When searching for the best funds, your top search criteria need not include a particular mutual fund company name. While it is true that some fund companies, such as Vanguard and Fidelity, have a large selection of high-quality funds, you may not catch the best funds if you cast too small of a small net.
For example, if you wanted to search for the best index funds, and you limited your search to Vanguard or Fidelity, you’d certainly find some outstanding funds, but they may not be the best every time.
In this case, you’d want to focus on finding the lowest expense ratios and how well the fund tracks its benchmark index; the name of the fund family is almost irrelevant.
So, in the spirit of finding the best funds, regardless of name recognition, we’ll show you three of the best mutual funds, each representing different categories, that you may not have heard of … until now.
Best Funds You’ve Never Heard Of: Northern Stock Index Fund (NOSIX)
Expenses: 0.10%, or $10 for every $10,000 invested
Minimum Initial Investment: $2,500
If you had to come up with a short list of the best S&P 500 Index funds, Northern Stock Index Fund (NOSIX) would be on it … if you did your homework.
Without even giving it much thought, most investors would name Vanguard Index 500 (VFINX) as the best S&P 500 index fund in the investment universe.
Although that would be a good choice, VFINX doesn’t quite beat NOSIX where index fund investors should be looking closest — expenses and tracking.
Generally speaking, if an index fund has low expenses and it tracks its benchmark index tightly, it will outperform other funds that track the same index if those funds have higher expenses.
For example, NOSIX has an expense ratio of 0.10%, which is lower than that of VFINX, which is 0.16%. Both funds do a good job of tracking the S&P 500, but the lower expense ratio gives NOSIX an edge that enables it to consistently produce higher returns than VFINX, although at a very slight margin.
Best Funds You’ve Never Heard Of: Wasatch Microcap Value (WAMVX)
Minimum Initial Investment: $2,000
When looking for the best small-cap mutual funds, size matters; which is to say that you want one with low assets under management and the Wasatch Micro Cap Value Fund (WAMVX) is about as small as it gets.
WAMVX recently had $168 million AUM, which is tiny for a top-notch mutual fund that’s been around for over a decade. The fund’s smaller size enables it to buy and sell shares of small companies without impacting stock price.
For example, consider the size of American Funds Smallcap World (SMCWX), which has over $27 billion in assets. It’s nearly 150 times bigger than WAMVX. SMCWX is so big that it was eventually forced to buy mid-cap stocks, which pulled the fund away from its original objective.
The small size of WAMVX has also enabled management to produce returns that have consistently beaten the small-cap category averages. The 10-year annualized return of 7.5% beats 92% of category peers and it beats the S&P 500 index.
Best Funds You’ve Never Heard Of: Bruce Fund (BRUFX)
Minimum Initial Investment: $1,000
One of the best balanced funds available is a little known fund with an unassuming name — Bruce Fund (BRUFX).
When you look at the performance stats for BRUFX, you might scratch your head wondering why the fund only has about $560 million in assets under management. Bruce beats at least 95% of moderate allocation funds for the 1-, 3-, 5-, 10- and 15-year returns. The 14.8% 15-year annualized return doubles that of the S&P 500 index.
And Bruce does this with a moderate allocation of stocks, bonds and cash. These numbers are also head and shoulders above what is considered the staple moderate allocation fund, Vanguard Balanced Index Fund Investor Shares (VBINX), which has over $27 billion in assets.
The two fundamental elements of the fund’s success are the fund’s modest size and the experienced management team of R. Jeffrey Bruce and Robert B. Bruce, both at the helm of the Bruce Fund since the fund’s inception over 33 years ago.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. However, he holds VBINX for some client accounts. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.