Best No Load Mutual Funds: Mutual Fund Research Matters!

Finding the best no load mutual funds is no easy task because today’s top funds often become tomorrow’s worst performing funds and vice versa. As the saying goes, "the faster they go up, the faster they come down." The temptation for the average person to invest in this year’s best performing funds is almost overwhelming. Unfortunately, investors all too often focus solely on historical performance without considering how the fund achieved the superior results or whether the results are sustainable.

Mutual Fund Research

The better way to perform mutual fund research is to focus on factors that will stand the test of time such as fund expenses as well as the experience of the fund manager and the depth of his or her research team. Expense ratios, which are generally comprised of an investment management fee, a 12b-1 fee and other operating costs, do not typically deteriorate over time. Further, expenses vary considerably and can sometimes help explain the performance differential between the best no load mutual funds and the worst no load mutual funds over time. This is especially true for fixed-income funds, where sometimes only one or two percent separates the best from the worst funds. There are exceptions, but the best no load fixed-income mutual funds are usually those with relatively low expense ratios.

Portfolio Manager and Analyst Qualifications

Even more important to selecting funds that will be the best performers for years to come is the background and experience of the manager and his or her investment team. As the publisher of a mutual fund report, one of the most time consuming aspects of my research is evaluating a fund’s manager and investment team. Portfolio managers should have experience in a variety of different market environments. The more experience, the better, provided that the portfolio manager is not close to retirement. In addition, the manager and his or her team should have high quality educational backgrounds and/or well-regarded designations. It has been my experience that managers with better credentials are more successful than managers with lesser credentials. Further, managers with high quality backgrounds seem to have better mutual fund research staffs than lesser-qualified managers.

Investment Approach

You should also probably consider a mutual fund’s investment style and whether it changes over time. To learn about a mutual fund’s investment style, you should start by reading a prospectus. A prospectus provides general information about a fund’s investment objective and sometimes very specific information about a fund’s style and approach. To find out whether a fund’s style has changed or is likely to change over time, an investor should read as much mutual fund research as possible and also try to keep track of a fund on a regular basis. The better mutual funds employ very consistent investment approaches that rarely deviate from their stated policies. At the very least, if you are invested with a fund with a consistent approach, you will know what to expect in both good and bad markets.

Avoid the Media Darlings and Do Your Research

Investors should try to avoid the high-flying, top performing mutual funds that often get quite a bit of media attention, but inevitably can never live up to expectations. Unfortunately, many investors are attracted to these types of funds, as evidenced by the large cash flows into funds that are performing the best. Heavy cash inflows into mutual fund sectors are usually a very good indicator of a market top. History shows that investing at the top often has disastrous consequences for a portfolio.

Instead, investors should go the extra mile and delve into the world of market and mutual fund research. There is an excellent market research report on the Tweedybrowne.com website called "What Has Worked in Investing" that provides information about the historical performance of various investment approaches. I also highly recommend The Intelligent Investor by Benjamin Graham. Mr. Graham was an investment manager as well as a professor at Columbia University and is considered to be the father of value investing. As far as mutual fund research is concerned, there are several high quality companies engaged in this area such as Morningstar, Lipper, Value Line and others. Mutual fund websites are also a very good source of information and can sometimes provide insight into management’s views on securities markets.

Mutual fund investing can prove to be a very lucrative endeavor, but usually only when you do the necessary legwork.

Michael A. Weiss, CFA is the editor of The Mutual Fund Investor, a quarterly publication that provides recommendations for some of the best no load mutual funds in various investment categories. To learn more about The Mutual Fund Investor, please visit http://www.mutualfundinvestor.net/. Or, for information on how to obtain a sample copy, you can click on http://www.mutualfundinvestor.net/Try_it_Free.html.