7 Best Mutual Funds to Buy for the Rest of 2016

Don't expect the rest of 2016 to be a picnic. Winning mutual funds will need to be hardy, defensive plays.

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Choosing the best mutual funds is becoming an increasingly difficult task as 2016 progresses. Soft oil prices, weak Chinese data and a softening U.S. economy continue to weigh heavily on investors’ minds.

Although first-quarter corporate earnings have mostly beaten estimates thus far in the season, a majority of companies have issued negative guidance for Q2. And the overall market sentiment has taken a decidedly “risk-off” direction as small-caps and international stocks are negative year-to-date.

Unless there is a surprise positive turn in these macroeconomic conditions, the major market indices and the riskier areas of the market are likely to see low to slightly negative returns, along with bouts of volatility, for the remainder of the year.

So, what does that mean for picking the best mutual funds for the rest of 2016?

Investors should be on the lookout for well-diversified mutual funds, defensive sectors and bond funds that invest in high-quality, intermediate-term debt. The game here is minimizing risk and maximizing returns.

That’s no easy task, but we’re here to help with this list of the best mutual funds to buy for the rest of 2016.

Best Mutual Funds for the Rest of 2016: Vanguard Wellesley Income Fund (VWINX)

Expenses: 0.23%, or $23 for every $10,000 invested
Minimum Initial Investment: $3,000

If the economy stays soft and a sideways market for stocks persists, well-managed conservative allocation mutual funds such as Vanguard Wellesley Income Fund (VWINX) can be a perfect fit for your portfolio.

With the broad market stock indices mostly sitting on low-single-digit gains to slight losses on the year and the Federal Reserve backpedaling on their tightening plans, a fund with the right mix of stocks and bonds can produce market-beating returns.

A conservative blend of high-quality bonds and large-cap stocks like Microsoft Corporation (MSFT), Wells Fargo & Co (WFC), and Johnson & Johnson (JNJ) has VWINX up 4.6% in 2016, which beats both the S&P 500 and the Barclays U.S. Aggregate Bond Index.

If the remainder of the year looks anything like the first four months, VWINX should prove to be among the best mutual funds to buy in 2016.

Learn more about VWINX here.

Best Mutual Funds for the Rest of 2016: Fidelity Select Health Care Portfolio (FSPHX)

Expenses: 0.73%
Minimum Initial Investment: $2,500

The healthcare sector has had a tough 2016 but now can be a good time to pick up shares of funds like Fidelity Select Health Care Portfolio (FSPHX) in anticipation of a recovery later in the year.

Healthcare products and services are mostly essential, which is why the health sector is considered be a defensive one. Although the sector has been beaten down by falling biotechnology stocks, and the tough political talk on pharmaceutical pricing has pushed down prices, the underpinning factors for performance — such as an aging population and advances in bio-technology — will remain for years to come.

Therefore, now can be a good time to buy shares of a fund like FSPHX, which focuses on healthcare stocks like Medtronic plc (MDT), Amgen, Inc. (AMGN) and Boston Scientific Corporation (BSX).

Learn more about FSPHX here.

Best Mutual Funds for the Rest of 2016: Vanguard REIT Index Fund (VGSIX)

Expenses: 0.26%
Minimum Initial Investment: $3,000

One sector that can benefit from the Fed’s “lower for longer” approach to interest rates is real estate — and the Vanguard REIT Index Fund (VGSIX) is one of the best mutual funds in this sector.

With rates holding low and steady in 2016, borrowing costs for real property can stay in an affordable range for more buyers, as compared to what was expected to be a rising-rate environment. At the same time, home values remain out of reach for many first-time homebuyers, and this trend has pushed up rents. This balance of forces is a win-win for the real estate sector.

Thus far in 2016, VGSIX is up 3.7%, thanks in part to strong years by top holdings Simon Property Group Inc (SPG) and Public Storage (PSA) — and more upside potential is there, as long as the economy doesn’t get too hot or too cold.

Learn more about VGSIX here.

Best Mutual Funds for the Rest of 2016: Hussman Strategic Total Return Fund (HSTRX)

Expenses: 0.76%
Minimum Initial Investment: $1,000

If you’re looking for a good tactical asset allocation fund that can put up positive returns in challenging markets, Hussman Strategic Total Return Fund (HSTRX) fits the bill.

HSTRX tends to shine brightest when volatility and downside pressure are more prominent in capital markets, which has been the case in 2016. Portfolio manager John Hussman is the best tactical allocation fund this year with a 10.2% year-to-date gain.

The portfolio consists primarily of fixed-income securities, but Hussman’s hedge fund-like tactics will have him moving significant amounts of fund assets to cash, stocks or commodity-based securities — right now he likes miners Newmont Mining Corp (NEM) and Barrick Gold Corporation (USA) (ABX) — when he sees opportunities for gains in challenging markets.

Learn more about HSTRX here.

Best Mutual Funds for the Rest of 2016: Vanguard Intermediate-Term Bond Index Fund (VBIIX)

Expenses: 0.16%
Minimum Initial Investment: $3,000

For most of 2016, bonds in the aggregate have looked better than stocks, and one of the best funds to hold for bonds now is Vanguard Intermediate-Term Bond Index Fund (VBIIX).

Although long-term bonds and zero-coupon bonds tend to do better in low- and falling-rate environments, intermediate-term bonds are likely the best bet for the rest of 2016. This is because, in the event of a rate hike, intermediate-term bonds won’t fall in price as much as longer-duration issues.

Thus, VBIIX can capture the upside for bond prices in a low-rate environment but minimize the downside, should rates rise sooner than later.

This is one of the best examples of our theme of minimizing risk while capturing returns.

Learn more about VBIIX here.

Best Mutual Funds for the Rest of 2016: Fidelity Select Gold Portfolio (FSAGX)

Expenses: 0.94%
Minimum Initial Investment: $2,500

When investors are fearful about the global economic environment, they increasingly buy gold bullion and funds like Fidelity Select Gold Portfolio (FSAGX).

For most of 2016, the U.S. dollar has weakened against other major world currencies — a trend that has meant plenty of strength for gold prices. Although the dollar has firmed up a bit of late, the Fed’s loosening monetary policy, in combination with a continuing risk-off sentiment, could provide more upside potential for the precious metal this year.

FSAGX is up 70% year-to-date, but that doesn’t mean gold funds are headed toward a correction. Gold demand can remain robust, and that means good things for holdings like Randgold Resources Ltd. (ADR) (GOLD), Goldcorp Inc. (USA) (GG) and Newmont Mining.

Learn more about FSAGX here.

Best Mutual Funds for the Rest of 2016: Vanguard Utilities Index Fund (VUIAX)

Expenses: 0.1%
Minimum Initial Investment: $100,000

With the Fed in no hurry for another rate hike and the U.S. economy looking soft, utilities stocks can be market leaders in this environment.

Vanguard Utilities Index Fund (VUIAX) is one of the best funds to buy in this sector.

The Fed’s “lower for longer” approach to interest rates makes dividends on utilities stocks look attractive compared to bonds. The VUIAX portfolio is full of such stocks like Duke Energy Corp (DUK), NextEra Energy Inc (NEE) and Southern Co (SO), resulting in a thick 3.3% dividend yield.

As for performance, VUIAX is beating over 80% of utilities sector funds in 2016 with year-to-date gain of 13.8% and it leads 99% of category peers in one-, three- and five-year returns.

The one (significant) problem with this fund is that, as far as mutual funds are concerned, it’s only available as Admiral shares, which in this case require a $100,000 minimum investment. If that’s too steep for you, you can buy this fund (and numerous other Vanguard funds) as an ETF. In this case, you’d be looking for the Vanguard Utilities ETF (VPU).

Learn more about VUIAX here.

As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities, although he holds VWINX in some client accounts. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, South Carolina. Under no circumstances does this information represent a recommendation to buy or sell securities.

Article printed from InvestorPlace Media, https://investorplace.com/2016/05/best-mutual-funds-rest-of-2016/.

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