Now that the market has reached new highs, several of the top funds to buy are getting hit with heavy inflows.
Attracting new money can be a good thing for mutual funds. Fund inflows can indicate positive market momentum, but actively managed funds can also get too bloated with huge assets under management and performance can ironically drag as a result.
As I explained before, smaller is often better in the world of mutual funds. That’s why the best mutual fund managers often close a fund to new investors when assets become too large to manage. So whether you are looking for a momentum play to buy or you want to stay in the know about funds with potential for asset bloat, you’ll want to check out the funds highlighted here.
Our selections are from a recent Morningstar story on 25 funds investors are buying. They’re all mutual funds with the highest inflows of assets from the past year.
But rather than just listing 25 mutual funds, we highlight the seven top funds to buy before they get too crowded:
Top Funds to Buy: Metropolitan West Total Return Bond (MWTRX)
Three of the top funds attracting the most assets in the past year are bond funds, and Metropolitan West Total Return Bond Fund Class M (MUTF:MWTRX) is the best among those three.
The Federal Reserve’s “lower for longer” monetary policy continues to benefit bond funds shareholders. And most advisors, investors and financial media pundits that follow the fixed-income market would likely agree that MWTRX is the best actively managed bond fund on the market today.
Total net assets (including two other share classes of the fund) are $78.6 billion, with $9.35 billion coming to the fund in just the last year.
MWTRX beats more than 90% of intermediate-term bond category peers for five- and 10-year returns, but is behind the category and the Barclays Aggregate U.S. Bond Index for the one-year return. This fund is definitely worth a look for the long term, but the big inflows may prove to be a burden in the short term.
Top Funds to Buy: American Funds American Balanced Fund (ABALX)
Expenses: 0.58%, 5.75% front load
Minimum Initial Investment: $250
A volatile market has made balanced funds more attractive to investors and American Funds American Balanced Fund Class A (MUTF:ABALX) has received the largest inflows over the past year in this category.
Balanced funds can be a smart way for investors to minimize risk while still participating in any upside the market still has remaining. And top funds like ABALX (6.7% YTD gain) have achieved returns that beat the S&P 500 Index (5.7% YTD gain) without taking as much market risk. And its one-year performance beats 96% of moderate allocation funds over the past year.
The ABALX portfolio is roughly 58% stocks, most of which are quality large-caps like Microsoft Corporation (NASDAQ:MSFT), Philip Morris International Inc. (NYSE:PM) and Comcast Corporation (NASDAQ:CMCSA), with the remainder allocated to about 34% bonds and 8% cash.
Top Funds to Buy: Vanguard Dividend Growth Fund (VDIGX)
Minimum Initial Investment: $3,000
In a low-yield environment, the top funds that pay dividends have been attracting investor assets. And Vanguard Dividend Growth Fund Investor Shares (MUTF:VDIGX) is the best in that category.
With $3.5 billion in new assets coming into the fund in the past year, VDIGX is the tenth fastest growing mutual fund on the market. The 8% gain during that 12-month period nearly doubles that of the S&P 500 and is ahead of 97% of its category of large-blend funds.
Top Funds to Buy: Oppenheimer International Growth Fund (OIGAX)
Expenses: 1.14%, 5.75% front load
Minimum Initial Investment: $1,000
Several international stock funds have had heavy inflows in the past year and Oppenheimer International Growth Fund Class A (MUTF:OIGAX) is the biggest benefactor with over $23 billion of new assets coming into the fund.
In the short term, OIGAX is a mediocre performer in relation to category averages, but the long-term returns make it one of the top funds to buy, as evidenced by its No. 1 percentile rank for 10-year returns versus other foreign large growth funds.
The regional stock exposure is approximately 76% Europe, 11% Asia, 7% Americas and the remainder in other securities and cash. Top holdings include Dollarama Inc Com NPV (OTCMKTS:DLMAF), Infineon Technologies ORD NPV (OTCMKTS:IFNNF), and Nippon Telegraph & Telephone Corp (ADR) (NYSE:NTT).
Top Funds to Buy: American Funds EuroPacific Growth Fund (AEPGX)
Expenses: 0.83%, 5.75% front load
Minimum Initial Investment: $250
Another foreign stock fund to attract big numbers in assets in the past year is American Funds EuroPacific Growth Fund Class A (MUTF:AEPGX).
It’s counter-intuitive to think that a top fund investing in foreign stocks would grow in assets faster than a majority of funds investing in the U.S. and AEPGX surprisingly had big inflows in the past 12 months when many international stock funds were seeing outflows.
The asset growth is a testament to the strength of the American Funds brand and its massive presence in 401(k) plans and broker-sold accounts.
As the fund name suggests, EuroPacific holds a balance of European and Asian stocks. Recent top holdings included Novo Nordisk A/S (ADR) (NYSE:NVO), Novartis AG (ADR) (NYSE:NVS) and HDFC Bank Limited (ADR) (NYSE:HDB).
Top Funds to Buy: T. Rowe Price Blue-Chip Growth Fund (TRBCX)
Minimum Initial Investment: $2,500
High-quality large-cap domestic equities have attracted big assets over the past 12 months and T. Rowe Price Blue-Chip Growth Fund (MUTF:TRBCX) is among the top mutual funds to benefit the most.
Investors looking for big U.S. companies with growth potential like Alphabet Inc (NASDAQ:GOOG, GOOGL), Amazon.com, Inc. (NASDAQ:AMZN) and American Tower Corp (NYSE:AMT) will like the Blue-Chip Growth fund.
Although performance has fallen below category averages in the past year, I wouldn’t bet it’s due to asset bloat because the portfolio manager Larry Puglia, who has been at the helm of TRBCX for 13 years, has put up a stellar record of beating the market and the majority of large-cap growth funds for the three-, five- and 10-year returns.
So investors looking for a potential long-term play should take a close look at this top fund.
Top Funds to Buy: Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX)
Minimum Initial Investment: $3,000
To end our list of top funds that are attracting the most assets in the past year, we’ll turn the spotlight to another outstanding bond fund, Vanguard Intermediate-Term Tax-Exempt (MUTF:VWITX).
Investors looking to get steady income that’s free of tax-exempt at the federal level have been flocking to buy shares of VWITX over the past year, and for good reason.
Although the yield, at 1.21% isn’t exactly high, the fund has a rock-bottom expense ratio and returns have consistently beaten its benchmark, the Barclays one- to 15-Year Municipal Index. Plus the fund holds high-quality municipal bonds, which can be strategically smart in an uncertain environment.
Now add back the tax savings and you have one of the best bond funds to buy now.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. 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.