The returns realized by mutual fund shareholders in 2014 depended significantly on the categories they chose and, at least on the domestic equity front, whether they went with an active or a passive fund.
We bring this up because a significant part of a fund’s returns are influenced by the performance of the category it operates in. For example, the average energy fund plunged 18.0% last year. The culprit: oil. Oil prices fell from $105.37 per barrel on June 30, 2014, to $53.27 per barrel on December 31, 2014. Fund managers required by their funds’ objectives to invest in energy stocks in their portfolios could do nothing but sit and grimace.
We saw similar macro issues play out in other categories. The pullback in yields on the benchmark 10-year Treasury note helped the average long-term government bond fund realize a return of 24.1% last year. Among equities, there was a shift toward larger and domestic. The average domestic large-cap stock beat not only mid-cap and small-cap funds, but also global and foreign funds. However, most domestic large-cap active funds trailed the S&P 500 index in 2014.
These events show the importance of the category averages, which are located at the beginning of each category list in our table. They give insight into how the average fund performed, the typical amount of volatility incurred and the level of expenses charged, among other details.
The category averages are based on the more than 1,600 funds included in the Expanded Fund Listings Spreadsheet. The number of funds in the print version is limited to 737 due to space. In both formats, each mutual fund is classified into a useful category of similar funds to enable comparisons.
Two changes were made in this year’s guide. We are now using Morningstar’s calculation of a fund’s total assets based on the amount invested in all of its share classes. Previously, we used the assets under management (AUM), as reported by Morningstar, only for the share class listed. The change does not impact the total assets listed for funds with a single share class, but does increase the total assets listed for funds with multiple share classes (including many Vanguard funds). It also alters the rankings used to determine the composition of the widely held funds table.
R-squared is now included in the Expanded Fund Listings Spreadsheet. This measures the percentage of a fund’s three-year return that is influenced by the S&P 500. Investors seeking truly “active” domestic stock funds or who want to diversify away from the S&P 500 should look for lower numbers, with the understanding that a lower percentage does not, by itself, mean better performance or that one fund is different from another fund that also has a low R-squared value.
How to Use This Guide
Selecting a mutual fund, while less time-consuming than investing in individual securities, does require some homework. No one should put money into an investment that is not understood. This does not require a detailed investigation of the fund’s investments, but it does require an understanding of the fund’s investment objective, strategy, risks and performance history.
Individuals new to mutual fund investing can find explanatory articles in the Funds/ETFs section of AAII.com (www.aaii.com/investing/funds-etfs).
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We include four performance tables here. Table 1 lists the total return performance of common index benchmarks. Table 2 summarizes average performance and risk of the fund categories used in this guide. Table 3 allows you to compare the performance of the 50 most widely held funds (funds with the highest total assets). Table 4 lists the 50 best-performing funds of 2014 and Table 5 lists the 50 worst-performing funds of 2014. While past performance is no indication of future performance, it may attest to the quality and consistency of fund management.
Funds are grouped by category and listed alphabetically within each category; the ticker symbol is indicated after each fund name. The listings provide information on a variety of return and risk data, portfolio composition, and fees and expenses. Index funds are indicated by the letter “I” before the fund name, and funds that are closed to new investors are indicated by the letter “C.” (A description of each category is found here.)
If you would like to request a copy of a fund prospectus and annual report, telephone numbers and website addresses of the fund families are provided here. Make sure you read the prospectus carefully before investing in any mutual fund.
Which Funds Were Included
The funds that appear in the Guide were selected from the universe of open-end funds tracked through NASDAQ. The following are the various screens we used for the final selection.
Historical Record
Generally, only those funds with three full years of data are included in the Guide so that there is a performance record of significant length and all performance measures can be calculated. Index funds with less than three full years may be included, as well as specialty funds that are of great interest to our members.
Size
Funds must appear in the NASDAQ mutual fund listings and are generally required to have at least $50 million in assets to qualify for inclusion in the Guide. A small number of funds with assets below $50 million may be included in some of the newer categories tracked in this Guide.
Loads
The decision as to what constitutes a significant load is difficult, but we took this approach in the Guide:
Funds with front-end loads, back-end loads or redemption fees of 3% or less are included if the fund does not also have a 12b-1 charge. Funds with redemption fees that disappear after six months that also have 12b-1 charges appear in this Guide.
Funds with 12b-1 plans and no front- or back-end loads are included in the Guide; we note, however, whether the fund has a 12b-1 fee and what the actual charge is per year. A 12b-1 fee of greater than 0.25% is considered to be high, and we exclude these funds from the Guide. Investors should carefully assess these fees individually.
Mutual funds that impose a load that exceeds 3% or increased an existing load above 3% are excluded.
Expenses
Funds with significantly higher expense ratios than the average for their category are not included in this Guide. We have bolded the expense ratio of funds whose ratios are in the lower 25% of their category.
Performance
Funds that significantly underperformed the average performance of their category are not included in this Guide.
Interest and Availability
Only those funds that are of general interest to mutual fund investors and available for investment by individual investors directly from the fund, without restrictions, are included in this Guide. If a fund family offers multiple no-load classes of its funds, the investor or retail class is presented in this Guide.
Funds Not Included
AAII members who would like performance figures for no-load and low-load mutual funds that do not appear in the print edition of this Guide can access this information on our website at www.aaii.com/guides/mfguide, where more than 1,600 funds are covered.
A Key to Terms and Statistics
Most of the information shown in the listing is provided by Morningstar Inc., but some may come from mutual fund reports (the prospectus and annual and quarterly reports) and solicitation of information directly from the fund. Any data source has the potential for error, however, and before investing in any mutual fund, you should read the prospectus and the annual report.
When a dash appears in the performance tables or in a mutual fund listing, it indicates that the number was not available or does not apply in that particular instance. For example, the 10-year annual return figure would not be available for funds that have been operating for less than 10 years. We do not compile the bull and bear ratings for mutual funds not operating during the entire bull or bear market period. All numbers are truncated rather than rounded when necessary, unless noted otherwise in the following descriptions.
In the fund list, return and difference from category numbers that are in the top 25% of all funds within the investment category are shown in boldface. When risk and expense ratios are in the lowest 25% for the category, these numbers are also bolded. Fund data in the state-specific municipal bond category are not bolded because meaningful comparisons cannot be made across various state categories.
The following provides an explanation of the terms we have used in the performance tables and mutual fund listings. The explanations are listed in the order in which the data and information appear in the listing.
Index Fund: The letter I before a fund’s name indicates that the fund is designed to follow an index, such as the S&P 500; the amounts invested in each security are proportional to the issue’s representation in the index that the fund tracks. Because index funds are not actively managed, they make no research efforts to select particular stocks or bonds, nor do they make timing decisions. They are always 100% invested. This passive management approach means that the expenses and the cost of managing an index fund are extremely low. The online guide reports on the index tracked by these funds.
Closed: The letter C before the fund’s name indicates that the fund is not accepting purchases from new investors. Some closed funds may also suspend additional investments from existing shareholders.
Fund Name: The funds are presented alphabetically by fund name within each category.
Ticker: The ticker symbol for each fund is given in parentheses for investors who want to access price quotes or conduct further research. The ticker is four letters and is usually followed by an “X,” indicating that it is a mutual fund. For example, the large-cap Dodge & Cox stock fund ticker is DODGX.
Style—Growth and Value: Indicates fund investment style. G = growth investing focus, V = value investing focus. For more on what these classifications mean, click here.
Annual Total Return (%): Return percentages for each of the last five years. Returns that are in the top 25% of all funds within the investment category are shown in boldface.
Bull Market Return (%)—Fund and Category +/-: Reflects the fund’s performance in the most recent bull market, starting March 1, 2009, and continuing through December 31, 2014; and the difference in fund total return for the period from the average return for the period for all funds in the same category. Return and difference from category numbers that are in the top 25% of all funds within the investment category are shown in boldface.
Bear Market Return (%)—Fund and Category +/-: Reflects the fund’s performance in the most recent bear market, from November 1, 2007, through February 28, 2009; and the difference in fund total return for the period from the average return for the period for all funds in the same category. Return and difference from category numbers that are in the top 25% of all funds in the investment category are shown in boldface.
3-Year Return (%)—Fund and Category +/-: Assuming an investment on January 1, 2012, the annual total compound return if held through December 31, 2014; and the difference in fund annual return for the period from the average return for the period for all funds in the same category. When the difference from category is negative, the fund underperformed the average fund in its investment category for the period by the percent indicated. Return and difference from category numbers that are in the top 25% of all funds in the investment category are shown in bold.
5-Year Return (%)—Fund and Category +/-: Assuming an investment on January 1, 2010, the annual total compound return if held through December 31, 2014; and the difference in fund annual return for the period from the average return for the period for all funds in the same category. Return and difference from category numbers that are in the top 25% of all funds in the investment category are shown in bold.
10-Year Return (%)—Fund and Category +/-: Assuming an investment on January 1, 2005, the annual total compound return if held through December 31, 2014; and the difference in fund annual return for the period from the average return for the period for all funds in the same category. Return and difference from category numbers that are in the top 25% of all funds in the investment category are shown in bold.
Yield (%): The per share annual income distribution made by the fund divided by the sum of the year-ending net asset value plus any capital gains distributions made during the year. This ratio is similar to a dividend yield and would be higher for income-oriented funds and lower for growth-oriented funds. The figure only reflects income; it is not a total return number. For some funds, the yield may be distorted if the fund reports short-term capital gains as income.
Tax-Cost Ratio (%): Measures how much a fund’s annualized return is reduced by the taxes paid on distributions, assuming the maximum marginal tax rate. A tax-cost ratio of 0.0% indicates that the fund did not pay any taxable income or make capital gains distributions. A 3.0% tax-cost ratio means that each year, investors lost an average of 3.0% of their assets to taxes. The lower the ratio, the more tax-efficient the fund. The ratio is calculated using the last five years of data.
Risk Index—Category and Total: The Category Risk Index is the standard deviation of a fund’s return divided by the standard deviation of return for the average fund in the category. The Total Risk Index is the standard deviation of a fund’s return divided by the average standard deviation of return for all funds. Standard deviation is a measure of return volatility and is computed using monthly returns for the last three years. A value of 1.00 denotes average risk. Values above 1.00 indicate greater risk than average while values below 1.00 indicate less risk than average. Risk numbers that are in the lowest 25% of all funds within the investment category are shown in boldface.
Total Assets ($ Mil): Aggregate fund value for all share classes in millions of dollars at the end of the calendar year.
Portfolio (%)—Stock/Bond/Other/Cash: The portfolio composition columns classify investments by type and give the percentage of the total portfolio invested in each. Some funds are “funds of funds” and their portfolio holdings may be denoted by “100% other.” Due to rounding of the percentages and the practice of leverage (borrowing) to buy securities, the portfolio total percentage may not equal 100%.
Percent of Portfolio in Foreign Issues: The percentage of the fund’s assets invested in foreign stocks and bonds.
Portfolio Turnover Ratio (%): A measure of the trading activity of the fund, computed by dividing the lesser of purchases or sales for the year by the monthly average value of the securities owned by the fund during the year. Securities with maturities of less than one year are excluded from the calculation. The result is expressed as a percentage, with 100% implying a complete turnover within one year.
Number of Holdings: The total number of individual securities held by the fund. These can include stocks, bonds, currencies, futures contracts and option contracts. This figure is meant to be a measure of portfolio risk: The lower the number, the more concentrated the fund is in a few issues.
Percent of Portfolio in Top 10 Holdings: Investments, expressed as a percentage of the total portfolio assets, in the fund’s top 10 portfolio holdings. The higher the percentage, the more concentrated the fund is in a few companies or issues, and the more the fund is susceptible to market fluctuations in these few holdings. Used in combination with the number of holdings figure, the percent of portfolio in top 10 holdings figure can indicate how concentrated a fund is.
Expense Ratio (%): The sum of administrative fees plus adviser management fees and 12b-1 fees divided by the average net asset value of the fund, stated as a percentage. Brokerage costs incurred by the fund are not included in the expense ratio, but are instead reflected directly in net asset value. Front-end loads, back-end loads, redemption fees and account activity charges are not included in this ratio. Some funds are “funds of funds” and their expense ratios will not reflect the expenses of all funds held by the fund. Expense ratios that are in the lowest 25% of all funds within the investment category are shown in boldface.
Max Load (%): Percentage maximum fee. The letter indicates the load type: F = a front-end load (a sales charge incurred upon purchase), and R = a redemption fee that is incurred at the time of sale. A — = no loads or charges. Returns are not adjusted for loads, redemption fees or charges.
12b-1 Fee (%): If a fund has the ability to charge a 12b-1 fee, the percentage actually charged is given. A — = no 12b-1 fee can be charged.
R-Squared (%): How much of the fund’s three-year return can be explained by movements in the S&P 500 index. Values at or close to 100% imply the fund’s returns have been directly influenced by the domestic large-cap stock index. Lower values suggest the fund’s returns are less influenced by the movement of the S&P 500, with 0% implying no influence. (R-squared is included only in the Expanded Fund Listings Spreadsheet.)
The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
Performance Tables
Table 1. Performance of Index Benchmarks
Click here to open a larger version of the table.
Table 2. Performance of Category Averages
Click here to open a larger version of the table.
Table 3. Performance of the 50 Most Widely Held Funds
Click here to open a larger version of the table.
Table 4. Top 50 Performers for 2014
Click here to open a larger version of the table.
Table 5. Bottom 50 Performers for 2014
Click here to open a larger version of the table.
Choosing Between Mutual Funds and ETFs
The decision to own a mutual fund or an exchange-traded fund (ETF) is dependant on a variety factors. Both types of investments have advantages, but individual investors should not feel compelled to switch from one to another. Rather, investors should first consider the following factors and then consider the investment that is best for them.
What Are Your Portfolio Diversification Needs?
The first step when choosing among funds is to determine what your portfolio needs are. For example, do you need exposure to domestic small-cap stocks or municipal bonds? The answer to this question will be determined by what asset classes further diversify your portfolio and keep your investing risk within your tolerance limits.
Knowing what asset classes you want to target helps you in two ways. First, it narrows your search to a smaller, more targeted group of funds. Secondly, it makes comparisons between funds easier. A fund investing in emerging market debt will have different return characteristics and higher expenses than a fund that invests in U.S. blue-chip companies.
Active or Passive Management?
Once you know what your portfolio needs are, you can start to consider whether you want to use an active or passive strategy.
Active strategies rely on the ability of the fund manager to handpick the securities. Active managers attempt to beat their benchmark index (e.g., the S&P 500) or produce a portfolio that is either less volatile or less correlated with the benchmark. The inherent danger is that the fund manager fails to do so. Active management can result in higher expenses and greater turnover.
Passive strategies attempt to mimic the return characteristics of a benchmark index. Passively managed funds charge lower expense fees than their actively managed counterparts. An inherent danger is that a passively managed fund fails to accurately mimic the performance of the benchmark index and incurs tracking error. Plus, as exchange-traded funds have grown, so has the number of indexes designed for ETFs to track.
“Enhanced indexes” fall into a grey territory between active and passive approaches. Though funds that track these indexes are technically following a passive approach, the indexes themselves are designed to track an anomaly or a group of characteristics that may result in better performance than a well-known index. Again, the dangers of underperformance and higher expenses exist.
Mutual funds remain the only viable choice for low-cost exposure to active strategies, with very few ETFs following active strategies (though this could change). For passive strategies, ETFs tend to charge lower annual expense fees than their mutual fund counterparts.
Portfolio Composition
When looking at active and passively managed portfolios, you should also consider the securities held. Similar sounding funds can have vastly different holdings. (ETFs update their holdings much more frequently than mutual funds do.)
Index funds tend to overweight the largest companies within the index. For example, as of the end of January 2015, Apple (AAPL) and Exxon Mobil (XOM) comprise approximately 6% of the SPDR S&P 500 ETF (SPY). Depending on how the index is structured, a few companies can have a very significant impact on the fund’s performance.
Actively managed funds may also overweight large companies. Alternatively, they emphasize certain sectors in an attempt to boost performance. Managers who target securities that are less liquid, such as micro-cap stocks or smaller foreign markets, may incur more volatility or have problems replicating past performance if their fund attracts too much investor dollars. (Mutual funds can close themselves off to new investors, while ETFs cannot.) This is why, when looking at a mutual fund or an ETF, you should always read the prospectus and understand exactly what the fund invests in. Only invest in funds whose portfolio strategies you understand and are comfortable owning.
Your Personal Situation
Finally, you should consider your personal situation. Most 401(k) plans only offer mutual funds to participants. (Some do offer ETFs, however.) Individual accounts, both taxable and tax-deferred (e.g., IRAs) can be invested in mutual funds or ETFs. If your portfolio is invested directly with a mutual fund family (e.g., T. Rowe Price, Dodge & Cox, etc.), you will have to transfer money to a brokerage account in order to buy ETFs. (Unlike most mutual fund families, Fidelity and Vanguard do operate their own brokerage units.)
When choosing between a mutual fund and an ETF, go with the fund that best suits your needs. If it is a close call between a mutual fund and an ETF, the lower-cost option may be the best choice. Pay attention to any fees you may incur by making the change, such as brokerage commissions and transfer fees, since these can impact your overall cost savings.
Finally, do not feel compelled to alter your portfolio just for the sake of change. If you are happy with your current fund holdings, do not transfer your money out of them.
More on Mutual Funds
Getting Started in Fund Investing
The AAII Investor Classroom at www.aaii.com/classroom provides a step-by-step understanding of important investment ideas and techniques. It includes two mini-courses that focus on mutual funds. The first, "Understanding How Mutual Funds Work," covers the basic mechanics of funds for beginners:
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Mutual Funds by Design (What is a mutual fund?)
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Grappling With Fund Risk
- Fund Statements: What to Look For
- Fund Mechanics: Investing & Redeeming
The second, "Choosing the Best Fund for You," is for those who want to learn how to narrow the number of fund choices:
- What You Need to Know: The Nine Essential Fund Facts
- Researching Funds Through the Internet
- Tips When Looking at Funds
- Getting to Know a Fund’s Manager: Questions to Ask
- Breaking a Tie Between Funds
Managing Your Portfolio
For guidance on building and managing a portfolio of funds, go to the Funds/ETFs area at www.aaii.com/mfunds for these and other articles:
- How Many Mutual Funds Should You Have in Your Investment Portfolio?
- Your Mutual Fund Portfolio: Choosing the Level of Complexity
- The Sell Decision With Mutual Funds: Knowing When to Walk Away
- Financial Check-Up: Figuring Out Your Mutual Fund Portfolio
Trolling for More Data
For more in-depth fund data and screening tools, AAII’s "Guide to the Top Web Sites" directs you to the best places on the Internet.
Sharing Ideas
AAII Funds/ETFs Discussion Board provides an arena where you can talk about investing in mutual funds with other AAII members. Share your ideas and ask questions of fellow members to get real-world advice.
Category & Style Definitions
Mutual Fund Categories
Mutual funds come in all shapes and sizes; there are thousands of mutual funds, each with its own characteristics. Many mutual funds, however, have shared investments that generally lead to other characteristics that are similar.
These shared characteristics allow us to divide mutual funds into categories; here we define the mutual fund categories used in AAII’s Guide to the Top Mutual Funds. In the Guide, the individual fund listings appear alphabetically within each category.
Table 2 provides average returns and risk of funds by category, which illustrate some of the differences between these categories.
Stock Funds
Portfolio managers of mutual funds that invest in common stocks can choose from the stocks of different industries, stocks at different stages of development, and even stocks of different countries and regions. Over the stock market cycles, large stocks behave differently from small stocks, domestic stocks do not move in unison with foreign or emerging market stocks, and stocks in different sectors or industries react differently to the same economic and business conditions.
For investors to make initial investment decisions on stock mutual funds and to compare and evaluate the ongoing performance of investments in stock mutual funds, grouping similar funds together into cohesive categories is a logical first step. The stock fund categories provided in this guide to facilitate your selection and monitoring of fund investments encompass domestic funds, sector funds, and international funds.
Domestic Stock Funds
In funds categorized by stock size, the "cap" stands for capitalization (market share price times number of shares of common stock outstanding).
Large-cap stocks are usually stocks of national or multinational firms with well-known products or services provided to consumers, other businesses, or governments. Most of the stocks in the Dow Jones industrial average, the S&P 500 and the NASDAQ 100 are, for example, large-cap stocks. While some large-cap stocks are more volatile than others, a well-diversified mutual fund portfolio of large-cap stocks would perform similarly to most investors’ conception of the stock market. Large-cap stocks, as a category, also tend to pay the highest cash dividends, although many large-cap stocks pay no dividends. Large-cap stock funds, in summary, tend to have the lowest volatility and highest dividend yield in the domestic common stock group.
Mid-cap stocks are, as their name implies, smaller than the largest domestic stocks. They are usually established firms in established industries with regional, national and sometimes international markets for their products and services. The S&P MidCap 400 index is a common benchmark for mid-cap stocks. These funds would tend to have lower dividend yields than large-cap funds and to have somewhat higher volatility.
Small-cap stocks are often emerging firms in sometimes emerging industries. But also, these small companies can be established firms with local, regional and sometimes even national and international markets. The benchmark for this group is the S&P SmallCap 600 index. These stocks must have liquid enough trading for mutual funds to invest and, although small, are still listed on the New York Stock Exchange, the American Stock Exchange or NASDAQ. These small-cap funds tend to be more volatile than large-cap and mid-cap funds, have very low dividend yields, and often do not move in tandem with large-cap and mid-cap funds.
The large-, mid- and small-cap categories capture a fund’s predominant focus and are important because these size categories do not all behave alike in a market sense. The stocks do tend to move in somewhat different cycles and have pronounced differences in risk and return over time.
Neutral/Inverse Funds
Long-short funds hold sizable stakes in both long and short positions. Some funds are market neutral, dividing their exposure equally between long and short positions in an attempt to earn a modest return that is not tied to the market’s fortunes. Others shift exposure to long and short positions depending upon their macro outlook or the opportunities they uncover through bottom-up research.
Contra stock market funds invest in short stock positions and derivatives. Because these funds often have extensive holdings in shorts or puts, returns generally move in the opposite direction of the benchmark index.
Sector Stock Funds
Sector funds concentrate their stock holdings in just one industry or a few related industries. They are diversified within the sector, but are not broadly diversified. They may invest in the U.S. or internationally. They are still influenced and react to industry/sector factors as well as general stock market factors. Sector funds have greater risk than diversified common stock funds. While there are a substantial number of sectors represented by mutual funds, a handful of sector designations cover most of the sector fund offerings: communications, consumer discretionary, consumer staples, energy, financial, health, industrials, natural rescources/commodities, precious metals, real estate, real estate global, technology and utilities. As is clear from this sector category list, some sectors are of greater risk than others—technology versus utilities, for example. By definition, a sector fund is a concentrated, not diversified, fund holding.
International Stock Funds
International stock funds invest in the stocks of foreign firms. Some stock funds specialize in a single country, others in regions, such as the Pacific or Europe, and others invest in multiple foreign regions. In addition, some stock funds—usually termed "global funds"—invest in both foreign and U.S. securities. We have four classifications by type of investment for the international stock funds category—foreign stock funds, global stock funds, regional/country stock funds and emerging market stock funds.
International funds provide investors with added diversification. The most important factor when diversifying a portfolio is selecting investments whose returns are not highly correlated. Within the U.S., investors can diversify by selecting securities of firms in different industries. In the international realm, investors take the diversification process one step further by holding securities of firms in different countries. The more independently these foreign markets move in relation to the U.S. stock market, the greater the diversification benefit will be, and the lower the risk of the total portfolio.
In addition, international funds overcome some of the difficulties investors face in making foreign investments directly. For instance, individuals have to thoroughly understand the foreign brokerage process, be familiar with the various foreign marketplaces and their economies, be aware of currency fluctuation trends, and have access to reliable financial information in order to invest directly in foreign stocks. This can be a monumental task for the individual investor.
There are some risks unique to investing internationally. In addition to the risk inherent in investing in any security, there is an additional exchange rate risk. The return to a U.S. investor from a foreign security depends on both the security’s return in its own currency and the rate at which that currency can be exchanged for U.S. dollars. Another uncertainty is political risk, which includes government restriction, taxation, or even total prohibition of the exchange of one currency into another. Of course, the more the mutual fund is diversified among various countries, the less the risk involved.
Balanced Stock/Bond Funds
In general, the portfolios of balanced funds consist of investments in common stocks and significant investments in bonds and convertible securities. The range as a percentage of the total portfolio of stocks and bonds is usually stated in the investment objective, and the portfolio manager has the option of allocating the proportions within the range. Some asset allocation funds—funds that have a wide latitude of portfolio composition change—can also be found in the balanced category. Some are also global balanced funds, allocating part of their portfolio to foreign investments.
A balanced fund is generally less volatile than a stock fund and provides a higher dividend yield.
Target Date Funds
Target date funds have year designations that investors can match to their planned retirement date. They invest in a mix of domestic and foreign stocks and bonds that becomes more conservative and income-oriented as the target date draws near—the allocation to stocks decreases and the allocation to bonds increases. Risk declines and income increases as the target date approaches. Once the target date has passed, they become income funds. Target date funds are composed of other funds from the same fund family—they are in essence funds of funds.
[For more on target date funds, see "Target Date Funds: A Simple Premise, But Underlying Complexities" by Charles Rotblut from the October 2012 AAII Journal.]
Bond Funds
Bond mutual funds are attractive to investors because they provide diversification and liquidity, which is not as readily attainable in direct bond investments.
Bond funds have portfolios with a wide range of average maturities. Many funds use their names to characterize their maturity structure. Generally, short term means that the portfolio has a weighted average maturity of less than three years. Intermediate implies an average maturity of three to 10 years, and long term is over 10 years. The longer the maturity, the greater the change in fund value when interest rates change. Longer-term bond funds are riskier than shorter-term funds, and they usually offer higher yields.
Taxable Bond Funds
Bond funds are principally categorized by the types of bonds they hold.
Government bond funds invest in the bonds of the U.S. government and its agencies, while mortgage funds invest primarily in mortgage-backed bonds. General bond funds invest in a mix of government and agency bonds, corporate bonds (investment grade), and mortgage-backed bonds. Government and general bond funds are further categorized by maturity: short-term, intermediate-term and long-term.
A special category of inflation-protected bond funds hold Treasury Inflation-Protected Securities (TIPS).
Corporate high-yield bond funds provide high income but invest generally in corporate bonds rated below investment grade, making them riskier.
Convertible bond funds invest primarily in preferred stocks and bonds that are convertible into common stocks. These securities exhibit characteristics of both stocks and bonds by offering yield and the possibility of capital appreciation.
Municipal and State-Specific Bond Funds
Tax-exempt municipal bond funds invest in bonds whose income is exempt from federal income tax. Some tax-exempt funds may invest in municipal bonds whose income is also exempt from the income tax of a specific state.
International Bond Funds
International bond funds allow mutual fund investors to hold a diversified portfolio of foreign corporate and government bonds. These foreign bonds often offer higher yields, but carry additional risks beyond those of domestic bonds. As with foreign common stocks, currency risk can be as significant as the potential default of foreign government bonds—a particular risk with the debt of emerging countries. International bond funds are categorized as general, emerging or currency.
Stock Fund Style Definitions
For domestic stock funds, one other element can be superimposed over stock size distinctions to better understand performance and risk in different market environments: the growth or value investment management style of the fund portfolio manager. In the Guide, style is indicated for domestic large- cap, mid-cap and small-cap funds after the fund name by a G for growth investing focus and a V for value investing focus. Funds with G and V follow both styles.
- Growth Investing Focus: A small-cap growth fund will act differently than a small-cap value fund and a mid-cap growth fund is more likely to correlate with a small-cap growth fund than a mid-cap value fund. Portfolio managers of growth-managed funds seek out stocks that have either experienced rapid growth in sales or earnings or are expected to have rapid growth. Often these stocks have high price-earnings ratios (price per share divided by earnings per share) and are volatile when expectations for earnings or sales growth change even slightly. Few growth stocks pay any significant dividend, and they are often concentrated in industries such as technology, health, telecommunications and software.
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Value Investing Focus: The value style of investment management emphasizes low price to earnings, low price to sales (price per share divided by sales per share), and higher dividend yields. The trade-off relative to growth stocks is that value stocks have a lower expected growth rate in earnings and sales, but also less risk. Value stocks are often concentrated in insurance, banking, and electric and gas utilities, for example.
For purposes of diversification and risk, it pays to keep in mind the growth/value investment style mix of your stock mutual funds.
Mutual Fund Contact Information
| Fund Family Name | Phone Number | Website |
| Aberdeen | 866-667-9231 | www.aberdeen-asset.us |
| AdvisorOne Funds | 866-811-0225 | www.advisoronefunds.com |
| Akre | 877-862-9556 | www.akrefund.com |
| AllianceBernstein | 212-486-5800 | www.bernstein.com |
| Allianz Funds | 800-498-5413 | www.nacm.com |
| Amana | 888-732-6262 | www.saturna.com |
| American Beacon | 800-658-5811 | www.americanbeaconfunds.com |
| American Century Investments | 800-345-2021 | www.americancentury.com |
| AMG Funds | 800-548-4539 | www.amgfunds.com |
| Arbitrage Fund | 800-295-4485 | www.thearbfund.com |
| Ariel Investments, LLC | 800-292-7435 | www.arielinvestments.com |
| Artisan | 800-344-1770 | www.artisanfunds.com |
| Aston | 800-597-9704 | www.astonfunds.com |
| Ave Maria Mutual Funds | 888-726-9331 | www.avemariafunds.com |
| Baird | 866-442-2473 | www.bairdfunds.com |
| Baron Capital Group | 800-992-2766 | www.baronfunds.com |
| BBH | 800-575-1265 | www.bbhfunds.com |
| Berwyn | 800-992-6757 | www.berwynfunds.com |
| BMO Funds | 800-236-3863 | www.bmofunds.com |
| Bogle | 877-264-5346 | www.boglefunds.com/mutualfund |
| Boston Trust & Walden Funds | 800-282-8782 | www.btim.com |
| Bridgeway | 800-661-3550 | www.bridgeway.com |
| Broadview Funds | 855-846-1463 | www.broadviewadvisors.com |
| Brown Advisory | 800-540-6807 | www.brownadvisory.com |
| Brown Capital Management | 877-892-4226 | www.browncapital.com |
| Bruce Fund | 800-872-7823 | www.thebrucefund.com |
| Buffalo | 800-492-8332 | www.buffalofunds.com |
| Causeway | 866-947-7000 | www.causewayfunds.com |
| Cohen & Steers | 800-437-9912 | www.cohenandsteers.com |
| CRM | 800-276-2883 | www.crmfunds.com |
| Cullen Funds | 877-485-8586 | www.cullenfunds.com |
| Davenport | 800-281-3217 | www.davenportllc.com |
| Deutsche Asset & Wealth Mngt | 800-728-3337 | www.dws-investments.com |
| Dodge & Cox | 800-621-3979 | www.dodgeandcox.com |
| Domini | 800-582-6757 | www.domini.com |
| Dreyfus | 800-645-6561 | www.dreyfus.com |
| Dupree | 800-866-0614 | www.dupree-funds.com |
| Eaton Vance | 800-260-0761 | www.eatonvance.com |
| Edgewood | 800-791-4226 | www.edgewoodfunds.com |
| FAM | 800-932-3271 | www.famfunds.com |
| Federated | 800-341-7400 | www.federatedinvestors.com |
| Fidelity Investments | 800-544-8544 | www.fidelity.com |
| First Eagle | 800-334-2143 | www.feim.com |
| FMI Funds | 800-811-5311 | www.fmifunds.com |
| FPA | 800-982-4372 | www.fpafunds.com |
| Gabelli | 800-422-3554 | www.gabelli.com |
| Gerstein Fisher | 800-473-1155 | www.gersteinfisherfunds.com |
| Glenmede | 800-442-8299 | www.glenmede.com |
| Guinness Atkinson | 800-915-6566 | www.gafunds.com |
| Harbor Funds | 800-422-1050 | www.harborfunds.com |
| Harding Loevner | 877-435-8105 | www.hardingloevnerfunds.com |
| Hatteras Funds | 877-569-2382 | www.hatterasmutualfunds.com |
| Hennessy | 800-966-4354 | www.hennessyfunds.com |
| Homestead | 800-258-3030 | www.homesteadfunds.com |
| ICON Funds | 800-764-0442 | www.iconfunds.com |
| Invesco | 800-959-4246 | www.invesco.com |
| James Advantage Funds | 800-995-2637 | www.jamesfunds.com |
| Janus | 800-525-0020 | www.janus.com |
| Laudus Funds | 800-447-3332 | www.laudus.com |
| Lazard | 800-986-3455 | www.lazardnet.com |
| Lee Financial Group | 800-354-9654 | www.leehawaii.com |
| Leuthold | 800-273-6886 | www.leutholdfunds.com |
| Longleaf Partners Funds | 800-445-9469 | www.longleafpartners.com |
| Loomis Sayles | 800-633-3330 | www.loomissayles.com |
| Mairs & Power | 800-304-7404 | www.mairsandpower.com |
| Manning & Napier | 800-466-3863 | www.manning-napier.com |
| Marsico Funds | 888-860-8686 | www.marsicofunds.com |
| Matthew 25 Fund | 888-625-3863 | www.matthew25fund.com |
| Matthews Asia Funds | 800-789-2742 | www.matthewsasia.com |
| Merger Fund | 800-343-8959 | www.mergerfund.com |
| Merk Funds | 866-637-5386 | www.merkfund.com |
| Metropolitan West Funds | 800-241-4671 | www.mwamllc.com |
| Nationwide | 800-848-0920 | www.nationwide.com/mutualfunds |
| Neuberger Berman | 800-877-9700 | www.nb.com |
| Nicholas | 800-544-6547 | www.nicholasfunds.com |
| Northern Funds | 800-595-9111 | www.northernfunds.com |
| Oak Associates | 888-462-5386 | www.oakfunds.com |
| Oakmark Funds | 800-625-6275 | www.oakmark.com |
| Oberweis | 800-245-7311 | www.oberweisfunds.com |
| Old Westbury | 800-607-2200 | www.bessemertrust.com |
| Olstein | 800-799-2113 | www.olsteinfunds.com |
| Osterweis | 866-236-0050 | www.osterweis.com |
| Parnassus | 800-999-3505 | www.parnassus.com |
| Pax World Funds | 800-372-7827 | www.paxworld.com |
| Payden & Rygel | 800-572-9336 | www.payden.com |
| Pear Tree Funds | 800-326-2151 | www.peartreefunds.com |
| Permanent Portfolio | 800-531-5142 | www.permanentportfoliofunds.com |
| PIA Mutual Funds | 800-251-1970 | www.piamutualfunds.com |
| PIMCO | 888-877-4626 | www.pimco.com/investments |
| Polaris Funds | 888-263-5594 | www.polarisfunds.com |
| PRIMECAP Odyssey Funds | 800-729-2307 | www.odysseyfunds.com |
| ProFunds | 888-776-3637 | www.profunds.com |
| RBC Global Asset Mgmt | 800-422-2766 | www.rbcgam.us |
| Royce | 800-787-6923 | www.roycefunds.com |
| Russell | 800-787-7354 | www.russell.com |
| Rydex Funds | 800-820-0888 | www.rydex-sgi.com |
| Schwab Funds | 800-435-4000 | www.schwab.com |
| Scout | 800-996-2862 | www.scoutfunds.com |
| Sequoia | 800-686-6884 | www.sequoiafund.com |
| Shelton Capital Management | 800-955-9988 | www.sheltoncap.com |
| Sit | 800-332-5580 | www.sitfunds.com |
| Sound Shore Fund | 800-551-1980 | www.soundshorefund.com |
| T. Rowe Price | 800-638-5660 | www.troweprice.com |
| TCW | 800-248-4486 | www.tcw.com |
| Thompson IM Funds, Inc. | 800-999-0887 | www.thompsonim.com |
| TIAA-CREF Mutual Funds | 800-223-1200 | www.tiaa-cref.org |
| Tocqueville | 800-697-3863 | www.tocquevillefunds.com |
| Toews Funds | 877-558-6397 | www.ToewsCorp.com |
| Touchstone | 800-543-0407 | www.touchstoneinvestments.com |
| Tweedy Browne | 800-432-4789 | www.tweedy.com |
| U.S. Global Investors | 800-873-8637 | www.usfunds.com |
| USAA | 800-531-8722 | www.usaa.com |
| Value Line | 800-243-2729 | www.vlfunds.com |
| Vanguard | 877-662-7447 | www.vanguard.com |
| Villere & Co. | 866-209-1129 | www.villere.com |
| Voya | 800-992-0180 | www.investments.voya.com |
| Vulcan Value Partners | 877-421-5078 | www.vulcanvaluepartners.com |
| Walthausen Funds | 888-925-8428 | www.walthausenfunds.com |
| Wasatch | 800-551-1700 | www.wasatchfunds.com |
| Weitz | 800-304-9745 | www.weitzfunds.com |
| Wells Fargo Advantage | 800-359-3379 | www.wellsfargoadvantagefunds.com |
| WesMark | 800-864-1013 | www.wesmarkfunds.com |
| Westcore Funds | 800-392-2673 | www.westcore.com |
| William Blair | 800-635-2886 | www.williamblairfunds.com |
| Wilshire Mutual Funds | 888-200-6796 | www.wilfunds.com |
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