7 Best Mutual Funds That Justify Their Higher Prices

These mutual funds aim to dispel the stigma surrounding expensive funds

By Todd Shriber, InvestorPlace Contributor

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These days, the idea of embracing the best mutual funds, regardless of how expensive they are, is almost viewed as heresy. After all, scores of data confirm that passively managed index funds and exchange-traded funds have significantly lower fees than their actively managed mutual fund rivals. Plus, many active funds fail to beat their benchmarks and some of those failures are alarmingly consistent.

In better news, the competitive threat from cheaper, passive products is making expensive mutual funds a little less pricey.

“The asset-weighted average expense ratio for active funds fell to 0.72% in 2017 from 0.75% in 2016. This 4% decline was the largest annual percentage decrease in over a decade and was driven mainly by large net flows from expensive funds to cheaper funds, and secondarily by fee reductions,” said Morningstar.

Expensive mutual funds are not necessarily bad, particularly if the managers are able to deliver returns that are well in excess of the fund’s expenses. If Fund ABC carries a fee of 1%-per-year, or $100 on a $10,000 investment, that is an expensive mutual fund, but if it generates annualized returns of, say, 10% or more, that might be enough for some investors to take on that higher fee.

Here are some of the best mutual funds that merit their high fees.

Best Mutual Funds That Justify Their High Price

Best Mutual Funds That Are Worth the High Price Tag Fidelity Large Cap Value Enhanced Index Fund (FLVEX)
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Fidelity Large Cap Value Enhanced Index Fund (FLVEX)

Expense Ratio: 0.39%

Fidelity has recently been taking steps to reduce investors’ costs and fees, including eliminating investment minimums on index and mutual funds. For its part, the Fidelity Large Cap Value Enhanced Index Fund (MUTF:FLVEX) is not a particularly expensive mutual fund, but with that 0.39% annual expense ratio, it is pricier than a slew of passive value ETFs.

FLVEX is among the best mutual funds despite its slightly expensive price tag because domestic large-cap value stocks have recently shown signs of life after significantly lagging growth equivalents for much of the current bull market.

FLVEX’s top 10 holdings combine for 24.67% of its weight. The fund devotes 38.70% of its combined weight to the financial services and healthcare sectors and it has a three-star Morningstar rating.

Best Mutual Funds That Justify Their High Price

Best Mutual Funds That Are Worth the High Price Tag T. Rowe Price Blue Chip Growth (TRBCX)

T. Rowe Price Blue Chip Growth (TRBCX)

Expense Ratio: 0.70%

In addition to its expense ratio, the T. Rowe Price Blue Chip Growth (MUTF:TRBCX) requires a minimum initial investment of $2,500 and subsequent minimum investments of $100. Although its annual fee of 0.70% does not make TRBCX an alarmingly expensive mutual fund, an array of passive growth index funds and ETFs are far cheaper.

However, TRBCX is still one of the best mutual funds despite its higher expenses. Over the past year, three years, five years, 10 years and since its inception, TRBCX beats the S&P 500 and the Lipper Large-Cap Growth Funds category average. Hence the five-star Morningstar rating.

As is usually the case with growth funds, TRBCX is heavily allocated to the technology and consumer discretionary sectors. Those sectors combine for 63.60% of the fund’s weight.

Best Mutual Funds That Justify Their High Price

Best Mutual Funds That Are Worth the High Price Tag T. Rowe Price Emerging Markets Stock (PRMSX)

T. Rowe Price Emerging Markets Stock (PRMSX)

Expense Ratio: 1.23%

At a time when emerging markets stocks are scuffling, investors that want to remain engaged in the asset class may want to consider the benefits of active management. The T. Rowe Price Emerging Markets Stock (MUTF:PRMSX) delivers that, but this is an expensive mutual fund.

Relative to the average active mutual fund and passive emerging markets ETFs, PRMSX is an expensive mutual fund, but the T. Rowe price fund is slightly cheaper than its category average.

This expensive mutual fund also requires a minimum initial investment of $2,500 and subsequent minimum investments of $100. PRMSX allocates nearly 37% of its combined weight to China and Taiwan with about 63% of its sector weight spread among technology and financial services.

Over the past year, three years, five years, 10 years and since its inception, PRMSX beats the MSCI Emerging Markets Index and the Lipper category average, making it one of the best mutual funds out there that justifies its high expense ratio.

Best Mutual Funds That Justify Their High Price

Best Mutual Funds That Are Worth Their High Price American Funds International Growth and Income F-1 (IGIFX)

American Funds International Growth and Income F-1 (IGIFX)

Expense Ratio: 0.97%

The American Funds International Growth and Income F-1 (MUTF:IGIFX) “shares are available through certain registered investment advisor and fee-based programs, but are not available for purchase in most employer-sponsored retirement plans,” according to the issuer.

Although this is an expensive mutual fund, its minimum investment of $250 is palatable. Since its inception nearly a decade ago, IGIFX has produced decent returns with lower risk relative to the average fund in this category.

The fund holds 160 stocks, 81.30% of which are European or Asia-Pacific names.

Best Mutual Funds That Justify Their High Price

Best Mutual Funds That Are Worth Their High Price T. Rowe Price Real Estate (TRREX)

T. Rowe Price Real Estate (TRREX)

Expense Ratio: 0.73%

Finding cheap real estate funds is not difficult, but with this sector’s sensitivity to rising interest rates, active management can be of some assistance in the current environment. Although it teeters on the brink of being an expensive mutual fund, the T. Rowe Price Real Estate (MUTF:TRREX) is still one of the best mutual funds for income-minded investors looking for active management in the real estate space.

Like the other T. Rowe Price funds highlighted here, TRREX requires a minimum initial investment of $2,500 and subsequent minimum investments of $100. There is also a redemption fee of 1%.

TRREX garners a Morningstar rating of three stars, which is somewhat surprising given that this expensive mutual fund has consistently outperformed its Lipper category average since its inception in 1997. The strike against TRREX is that there have been periods in which the fund has lagged the Wilshire US Real Estate Securities Index.

Best Mutual Funds That Justify Their High Price

Best Mutual Funds That Are Worth Their High Price First Trust Preferred Securities And Income ETF (FPE)

First Trust Preferred Securities And Income ETF (FPE)

Expense Ratio: 0.85%

Taking a step away from the most expensive mutual funds that are actually worth it, this next pick is an expensive ETF to consider. The First Trust Preferred Securities And Income ETF (NYSEARCA:FPE) has an annual expense ratio of 0.85%, which is nearly 40 basis points higher than the 0.46% charged by the largest preferred ETF.

With that information readily accessible to all investors, FPE’s managers have to justify that fee. Over the past three years, FPE is doing just that, outperforming the largest preferred by 500 basis points.

Plus, FPE has been significantly less volatile over that period than the biggest, passive preferred ETF. The $3.55 billion FPE has a 30-day SEC yield of 5.05% and a four-star Morningstar rating.

Best Mutual Funds That Justify Their High Price

Best Mutual Funds That Are Worth Their High Price Fidelity Multi-Asset Income Fund (FMSDX)
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Fidelity Multi-Asset Income Fund (FMSDX)

Expense Ratio: 1.14%

The Fidelity Multi-Asset Income Fund (MUTF:FMSDX) is an expensive mutual fund due in large part to its massive turnover rate of 437%, according to issuer data. The more an active fund moves in and out of various positions, the more likely it is to become an expensive mutual fund.

To be fair, FMSDX is attractively priced relative to competing actively managed funds in this category. Multi-asset funds present investors with some element of interest rate risk because these strategies often rely on high-yield, rate-sensitive assets to generate income. However, an active manager can move to limit rate risk. Currently, 84% of FMSDX’s lineup is comprised of stocks and U.S. government debt.

Most of FDMSDX’s fixed income holdings are considered to have only moderate sensitivity to changes in interest rates and over 39% of its equity holdings are classified as large-cap value stocks.

Todd Shriber does not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2018/08/7-best-mutual-funds-that-justify-their-higher-prices/.

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