How To Find The Best Sector Mutual Funds: Q2’17

Finding the best mutual funds is an increasingly difficult task in a world with so many to choose from. How can you pick with so many choices available?

Don’t Trust Mutual Fund Labels

There are at least 241 different Financials mutual funds and at least 700 mutual funds across ten sectors. Do investors need 70 choices on average per sector? How different can the mutual funds be?

Those 241 Financial sector mutual funds are very different. With anywhere from 23 to 402 holdings, many of these Financials mutual funds have drastically different portfolios, creating drastically different investment implications.

The same is true for the mutual funds in any other sector, as each offers a very different mix of good and bad stocks. Consumer Staples ranks first for stock selection. Energy ranks last. Details on the Best & Worst mutual funds in each sector are here.

Paralysis by Analysis

We think the large number of Financial (or any other) sector mutual funds hurts investors more than it helps because too many options can be paralyzing. It is simply not possible for the majority of investors to properly assess the quality of so many mutual funds. Analyzing mutual funds, done with the proper diligence, is far more difficult than analyzing stocks because it means analyzing all the stocks within each mutual fund. As stated above, there can be as many as 402 stocks or more for one mutual fund.

Anyone focused on fulfilling the fiduciary duty of care recognizes that analyzing the holdings of a mutual fund is critical to finding the best mutual fund. Figure 1 shows our top rated mutual fund for each sector.

Figure 1: The Best Mutual Fund in Each Sector

Sources: New Constructs, LLC and company filings

Amongst the mutual funds in Figure 1, the Vanguard Financials Index Fund (MUTF:VFAIX) ranks first overall, the American Century Utilities Fund (MUTF:BULIX) ranks second, and the Fidelity Select Computers Portfolio (MUTF:FDCPX) ranks third. The Fidelity Select Energy Services…

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