The fees for mutual funds are higher because they are actively managed by portfolio managers who choose stocks that are likely to outperform benchmark indexes. While most experts say investors should seek mutual funds with an expense ratio of less than 1%, which means $100 in fees for each $10,000 invested annually, there are a few funds with performances that outshine a hefty fee. Investors can find plenty of high performing funds with fees around 1%, which is “worth it for an excellent investment management team and market insights,” says Michael Underhill, chief investment officer at Capital Innovations in Wisconsin. Here are six mutual funds that may be worth the fees.
Northern Small Cap Value Fund
The Northern Small Cap Value Fund (NOSGX) is an asset where an investor reaps the benefits of active management of small-cap companies and “while the fees may be more than you’d get with a passive fund, it could very well be worth it,” says Mike Loewengart, chief investment officer at E-Trade Financial. The net expense ratio for NOSGX is 1%, and its three-year annualized return is 8.1%. NOSGX's 10-year annualized return is 12.7%, which beats the benchmark, the Russell 2000 Value Index (.RUT) , at 12.4%. “Actively managed mutual funds can be pretty old school and often expensive vehicles for investing if you’re simply looking for broad market exposure,” he says. “Where active mutual funds can earn their keep is in niche investing areas, parts of the market that are less liquid and more opaque.” Niche investing is beneficial for small-cap stocks or specific sectors such as robotics or artificial intelligence.
Artisan Growth Opportunities Fund
Artisan Growth Opportunities Fund (ARTRX) is a global multi-cap growth fund that holds between 40 and 50 stocks and often invests 35% to 45% of its assets in its 10 largest positions, according to a 2018 report by Greg Carlson, a senior analyst at Morningstar. “But thanks to its focus on a relatively stable fare, blowups have been few,” Carlson said in the report. The expense ratio is higher at 1.15%, but the year-to-date return is 24.5%. While the 2018 return fell short at -9.07%, the fund generated a 31.18% return in 2017. Artisan Growth Opportunities has a “great active management equity culture at the firm, great performance and a few years ago expanded its mandate to more global assets,” Underhill says.
Morgan Stanley International Advantage Portfolio Fund
The Morgan Stanley International Advantage Fund (MFAPX) could be a good fit for investors seeking to add exposure to growth stocks outside the U.S., says Chris Osmond, chief investment officer at Prime Capital Investment Advisors. The fund's composition is heavily weighted toward consumer staples, accounting for a fifth of its holding. MFAPX carries a net expense ratio of 1.35%, with a three-year average total return of 18.9%. “Through applying a Warren Buffett fundamental approach to managing growth stocks, the fund has been able to provide superior absolute and risk-adjusted returns and has a good relative drawdown and downside results,” he says. The fund incorporates environmental socially responsible factors, commonly referred to as ESG, into its fundamental analysis. So investors can feel “good about the companies their money is invested in, while not having to sacrifice relative returns,” Osmond says.
The Oakmark Select (OAKLX) is a fund that focuses on the mid-cap and large-cap sectors, with only around 20 stocks. This fund is managed by well-known portfolio manager Bill Nygren who focuses on value stocks, and he's managed this fund since 2000. He's also the chief investment officer for U.S. equities at Harris Associates. OAKLX's top holdings include Alphabet (GOOG), CBRE Group (CBRE), Citigroup (C) and Ally Financial (ALLY). OAKLX's expense ratio is 0.97%. Since its inception in November 1996, the fund has returned about an 11.5% compared to its benchmark, the S&P 500 (.SPX), which returned roughly 8.5%. “This fund has a great culture of active management in value equities and a long term record of success,” Underhill says.
Janus Henderson Global Value Fund
The Janus Henderson Global Value Fund (JPPIX) appropriates its investments between about 40% in U.S. stocks and 53% in non-domestic stocks, with "business fundamentals considered more important than fluctuations in the wider economy," the company said. The fund tilts more heavily toward the health care and financial services sectors. Its top holdings include Johnson & Johnson (JNJ), Pfizer (PFE) and Oracle (ORCL). JPPIX's fund managers say they are seeking high-quality companies with "strong management teams, stable balance sheets and durable competitive advantages that are trading at attractive valuations." The fund's expense ratio is 0.96%, and its year-to-date total return is 8.54%. JPPIX is indexed to the MSCI World Index.
T. Rowe Price Emerging Markets Corporate Bond Fund
The T. Rowe Price Emerging Markets Corporate Bond Fund (TRECX) invests 80% of its assets in the corporate bonds issued by companies that are either based in, listed in or conduct the majority of their business in emerging markets in Latin America, Asia, Europe, Africa and the Middle East. Bonds provide income to investors and tend to be less volatile than stocks. The fund has a 0.99% expense ratio and a year-to-date return of 10%. Its three-year average annual total return of 5.5%. The top holdings include Globo Comunicacao E Participacoes, ICTSI Treasury BV and FirstRand Bank. The maturities among the fund's top 10 holdings range from 2024 to 2038.