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3 Low-Beta Mutual Funds to Ease the Economic Pain

Nitish Marwah

The Federal Reserve’s latest report on industrial production paints a very grim picture of the U.S. economy. Per the report, industrial production slumped 11.2% in April, registering its largest monthly drop in the 101-year history of the index.

It goes without saying that the coronavirus pandemic has dealt a severe blow to industrial activity across the country. Furthermore, a record drop in manufacturing paved the way for a slump in the metric.

The pandemic forced many factories to close operations which led to a record drop in manufacturing activity. Also, falling oil output and lower-than-usual power consumption weighed on the index.

Meanwhile, capacity utilization fell to 64.9% last month from 72.7% in March, breaking its previous record low during the Great Recession in 2009.

Also, manufacturing production dropped 13.7% in April, weighed down primarily by a 70% reduction in production of automobiles and auto parts. Mining output and utility production slumped 6.1% and 0.9%, respectively.

The coronavirus pandemic has also led to a rout in the U.S. economy, ending its historic 11-year bull run in the first quarter of 2020. The U.S. economy contracted 4.8% at an annualized rate in the period between January and March for the first time since 2008. Economists believe that this was just a prelude to further upheaval in the days ahead, as they predict a contraction of about 37% in the next quarter, with consumer spending falling as much as 43%.

This is the biggest crisis America’s economy is going through since the Great Depression in 1930s. The U.S. economy had been growing steadily at a 2% annualized rate for 11 continuous years, before its run was cut short by the COVID-19 pandemic.

In this context, it is important to safeguard one’s portfolio from such uncertainties and invest in low-beta mutual funds.

Such funds are inherently less volatile than the markets they trade in. In this case, a low beta ranges from 0 to 1. We have selected three low-beta mutual funds that have given positive one-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Northern Short Bond Fund BSBAX aims at maximizing total return with minimum reasonable risk. The fund invests the majority of its assets in bonds and other fixed-income securities. BSBAX mostly invests in investment grade domestic debt obligations, but may also invest in obligations of foreign issuers and junk bonds.

This Inv Grade Bond-Short product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 2.2% and 1.6%, respectively.

BSBAXhas an annual expense ratio of 0.40%, which is below the category average of 0.74%. The fund carries a three-year beta of 0.33.

DFA International Sustainability Core 1 Portfolio DFSPX fund invests a major portion of its net assets in equity securities. It may gain exposure to companies associated with approved markets by purchasing equity securities in the form of depositary receipts, which may be listed or traded outside the issuer's domicile country.

This International Bond - Developed product has a history of positive total returns for over 10 years. Specifically, the fund's return over the five-year benchmark is 0.8%.

DFSPXhas an annual expense ratio of 0.33%, which is below the category average of 0.98%. The fund carries a three-year beta of 0.58.

Fidelity Balanced Fund FBALX aims for growth in capital and income that is consistent with reasonable risk. The fund invests the majority of its assets in stocks and other equity securities. Tthe rest of its assets is invested in bonds and other debt securities.

This Allocation Balanced product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 7.4% and 6.7%, respectively.

FBALXhas an annual expense ratio of 0.53%, which is below the category average of 0.82%. The fund carries a three-year beta of 0.75.

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