Best mutual funds for 2022 reveal how investors can profit in the new year by focusing on stocks with low expenses, diverse holdings and equities that are resilient to market pullbacks.
The best mutual funds for 2022 provide ways to invest in value, growth and income, and blue-chip stocks. The latter equities are especially relevant in the face of adverse economic developments, such as rising inflation that has been exhibited in the past year, since such companies are known to weather downturns well and continue to operate profitably.
Consumer prices are soaring at the fastest pace in the past 40 years. The U.S. Labor Department reported on Thursday, Feb. 10, that prices in January 2022 jumped 7.5% from a year ago, marking the biggest surge since 1982.
5 Best Mutual Funds for 2022: T Rowe Price Value Fund
The T. Rowe Price Value Fund (TRLX) is a good choice, except its expense ratio hovers around 0.77%, which is a bit higher than usually preferred. However, the fund manager, Mark Finn, has been at the helm for more than 10 years, backed by a well regarded analyst team at T Rowe Price. Finn likes to make sector bets, investing in industry-leading companies with healthy financials and economic moats, often when they are facing declines in stock price and pessimism from investors.
The investing style of this fund gives appropriate diversity to the investor along with market resiliency, as many of the companies are classified as large cap (>$10 billion net worth) value or large-cap growth companies. Lastly, this fund is fairly accessible with an initial investment requirement of $2,500.
5 Best Mutual Funds for 2022: Fidelity Advisor Growth & Income Fund Class I
The Fidelity Advisor Growth & Income Fund Class I (FGIOX) meets my established criteria with an expense ratio of 0.7%, no sales load, 5-star Morningstar rating and a diversified, market resilient portfolio. The fund manager, Matt Fruhan, is valuation-focused, avoiding the stocks of companies with high growth projections baked into their prices. He instead invests in cheaper, struggling companies with solid financials. The portfolio focuses on high-yielding stocks, with the average company in the portfolio projecting a 2.4% dividend yield for the following year, in comparison with the S&P 500 average of 1.4%. This fund has a minimum initial investment of $0 dollars, and thus is completely accessible to individual investors.
5 Best Mutual Funds for 2022: Fidelity® Low-Priced Stock Fund; Ticker: FLPSX
The Fidelity Low-Priced Stock Fund (FLPSX) has an expense ratio of 0.65% and no sales load. It can be classified as investing in mid cap ($2-10 billion net worth) value companies. This means that as long-term investors, the managers want to own resilient companies with strong profitability, little debt, a defendable market niche and capable leadership. While the size of the fund leaves it somewhat constrained, since ownership regulations prohibit it from buying large portions of companies, its size has led it to being diversified across 900 companies, with investment in all sectors of the market. Separate from the U.S. Equity-focused portfolios of the previously mentioned funds, this one also has exposure to international markets, having a near 60%-40& U.S.-to-global equity weighting. This again highlights the diversification and size of this fund. The minimum initial investment of $0 dollars makes this fund completely accessible to individual investors.
5 Best Mutual Funds for 2022: Fidelity Blue Chip Growth K6 Fund
The Fidelity Blue Chip Growth K6 Fund (FBCGX) has below average fees, with an expense ratio of 0.45%. The investment objective of its manager, Sonu Kalra, is to track companies with strong prospects of increasing earnings by 10% or more, seeking increased share prices for companies. This has led the portfolio to somewhat follow the Russell 100 Growth Index, with its top portfolio weightings in Apple Inc. (NASDAQ: AAPL), Amazon.com Inc. (NASDAQ: AMZN) and Microsoft Corporation (NASDAQ: MSFT).
Value funds, as occurred in the 2021 Mutual Fund review, have seen great success with their investment strategies. The ideology behind including this mutual fund lies in its low expense ratio, its resilience to market swings due to its large-cap stock weightings and an alternative approach besides investing in value based, long-term funds. With a well recognized manager at the helm, investing in either the original Blue Chip Growth fund, or the newer K6 fund, are good ways to diversify a growth position in the market.
5 Best Mutual Funds for 2022: Vanguard Wellington Fund Investor Shares; Ticker: VWELX
Last but not least, the Vanguard Wellington Fund Investor Shares (VWELX) is a balanced equity-fixed income fund. With around 50-70% weighting in equity, this fund has ample upside to capture market gains. As we saw in the 2022 macroeconomic outlook, interest rates are rising, indicating higher cost of capital for companies, and higher yields on bonds for investors.
Investors, who believe that interest rates will not stay at the lows they have been at in recent years, should see appreciation of their investment, if this is indeed the case. With an expense ratio of 0.24%, no sales load and minimum investment of $3,000, this fund is accessible to most individual investors.
The fund manager, Daniel Pozen, targets high-quality, dividend-paying large caps with a durable edge when investing in equity, i.e., McDonalds. This gives the fund less upside in a higher growth market. However, the fund offers consistent high yield through bonds and dividends, giving it resiliency in volatile markets.
Best Mutual Funds for 2022: Review of 2021 Mutual Fund Performance
Think back to when the first COVID case in the United States was discovered on January 26, 2020. At the time of writing this article, it has been two years since the COVID pandemic brought along change, fear and economic instability.
After a brief bear market, where stock prices dramatically declined due to lockdowns and government policies, the stock market has dramatically bounced back through the past 18 months. In 2021, Mutual Funds were contending with rising interest rates and a delayed return to normal as vaccination policies were surrounded in political turmoil alongside new variants of COVID popping up.
Which mutual funds captured market growth best throughout 2021? This generally meant their investments were resilient to the continued impact of COVID on consumer demand, while capturing the returns of the bear market that continued throughout the year. The best-performing mutual funds were the Smead Value Fund and the Monteagle Select Value Fund, with nine of the top 10 best-performing funds being long-term value focused investment funds that focused on mid to large-cap funds.
We saw these funds return 35.6% to 42.5% in 2021, while the S&P 500 grew by 26.9%, the Dow Jones Industrial Average (DJIA) gained 18.7% and the NASDAQ Composite gained 21.4%. Clearly, a focus on mid-to-large capitalization companies worth more than $2 billion dollars was successful in 2021.
There are several reasons why mutual funds investing in long-term value prospects, classified as mid- to large-cap companies, had great success. First, the larger size of these companies gave them greater resilience to the various changes due to COVID and more capital on hand to drive innovation and technological solutions. Second, the diversification of the fund’s portfolios allowed them to capture gains across key sectors, such as big tech and real estate. On the technology front, for example, Alphabet (Google) stock increased by 65%.
How does this 2021 success translate into 2022? It is hard to gauge whether the companies in these funds will demonstrate the same gains in the coming year. It is also important to note that a one-year performance record is in no way indicative of future performance for a fund. However, it is informative to look at the factors that led to the success of these funds, as these macroeconomic tailwinds can have an impact on the returns of companies held by mutual funds.
5 Best Mutual Funds for 2022: Macroeconomic Environment for 2022
As of January of 2022, the Federal Reserve System signaled it would trim monetary stimulus that has been bolstering the economy to combat the effects of the COVID pandemic. To that end, the Fed shifted to higher interest rates to combat inflation, the first increase since 2018. These two policies are expected to have a negative effect on companies’ ability to grow due to the higher cost of debt and potentially reduced demand due to scaled-back cash inflows to consumers from the government during the pandemic.
Investors have reflected a fear of unsustainable growth and a gross domestic product (GDP) contraction in large stock selloffs. Due to this, January 2022 was the worst month of stock decline in the S&P 500 since March of 2020, the start of the pandemic in the US.
Professionals have warned that countries across the globe will most likely face several more COVID variants in the future. This could lead to further supply chain issues and a continued slowdown in travel.
However, several key statistics stick out as a silver lining. According to the Federal Reserve Bank in Kansas City, policy advisor A. Lee Smith documented a sharp increase in savings by the American public. The savings rate quadrupled from 7.2% in December 2019 to 33.7% in April 2020, dropping to a savings rate around 14%. These increased savings, alongside pent-up demand of consumers still waiting to fully exit the COVID pandemic, signal an increase in disposable income for the average consumer.
5 Best Mutual Funds for 2022: Criteria For Picking Mutual Funds
There are many different brokerages that offer mutual fund services to customers, with the largest collection of funds offered through Vanguard, Fidelity and BlackRock Inc. (NYSE: BLK). Of the thousands of mutual funds available, here is how to evaluate the best mutual funds to buy in 2022. We will lay out our criteria for selecting these funds, and why these criteria are important.
- U.S. stock-based funds that are rated 5 stars by Morningstar
- Low expense ratios, less than 0.75%, and no sales load
- Diversity and portfolio composition to succeed in the future macroeconomic environment
A stock-based fund that is rated 5 stars by Morningstar is assessed on how the investment has performed in comparison to its peers within the same category, after adjusting for risk and accounting for all relevant charges. The funds that have historically performed in the top 10%, when looking at their combined 3-, 5-, and 10-year returns, receive 5 stars from Morningstar. Thus, the rating is objective, and can be used as an indicator of solid investment fundamentals in the portfolio. A 5-star rating also shows a fund’s ability to provide quality returns to investors, demonstrated by historical performance.
Low expense ratios under 0.75%, alongside no sales load, are used as criteria due to the effect fees and expenses have on overall returns. As shown in the macroeconomic analysis, markets where share prices are rising are never guaranteed. However, investors will always be charged a certain percentage of their assets to pay for fund management. Thus, low expense ratios help reduce the impact of market contractions for investors, providing greater resilience to the ups and downs of stock prices.
Lastly, a diverse portfolio is essential in this context. When choosing mutual funds for one’s portfolio, it is important that an investor has the ability to tap into many different areas of the market. Thus, an investor can avoid firm specific risk, and capture potential gains across a large portion of the market.
Investors who seek the best mutual funds for 2022 have enticing ones to consider from the handful featured in this article.