Higher bond yields continue to weigh on equities following concerns over increased inflation, raising skepticism in the market. Additionally, upbeat economic data including a strong jobs report continue to bolster rate hike chances as early as next month.
Given the negative outlook, no-load mutual funds are again in demand. Mutual funds with no sales or commission charges are known as no-load funds. This generally happens when funds are traded directly through the investment company and not through some secondary entity.
This implies that they do not carry the burden of management funds unlike funds with entry or exit loads. It comes as no surprise that no-load funds have managed to provide better returns compared to load funds so far this year.
Markets in Disarray, Rate Hike Fear Looms
A higher rate environment, strong economic growth, steady job additions, better wage growth and increased inflation weighed on bond prices. Lower bond prices supported the 10-year U.S. Treasury yield, which was at 2.886% near its all-time high level. Higher treasury yields continue to weigh on the equity market.
Expectations of a rate hike in the Fed’s next policy meeting in March also continued to weigh on sentiments. Further, on Feb 20, the CBOE Volatility Index (VIX) jumped 7.4% to 20.89. A reading above 20 is considered alarming and indicates that the broader market is in turmoil.
In its two-day policy statement following the meeting ended Jan 31, the Fed did not raise its key interest rate. However, the central bank indicated that economic activity has increased at a “solid rate” and inflation will likely “move up” in 2018 and reach the desired 2% rate in the “medium term.” The Fed highlighted that the federal funds rate is likely to be increased at a gradual pace in the coming months.
Why Invest in No-Load Funds?
No-load funds are those that do not bear any sales or commission charge at the time of buying or selling funds. This generally happens when funds are traded directly through the investment company and not through some secondary entity. Sales load is normally divided into front-end sales load and back-end sales load.