As the economy crawls along into the second quarter, there’s no shortage of mixed signals for investors looking to get a sense of how much steam is left in the rally. For instance, with unemployment rates hovering around 10 percent, it’s become increasingly clear that the anemic job market will continue to put a damper on growth for the foreseeable future. Meanwhile, as a debt crisis rages throughout parts of the eurozone, investors are tempering their expectations for the global economy.
But at the same time, the first quarter was hardly a bust for the U.S. stock market, which has grown at a respectable clip so far this year. Notably, the S&P 500 shot up by 4.9 percent during the first quarter. That represents the index’s best first-quarter performance since 1998. And even though the Dow Jones Industrial Average dipped below 10,000 in February, it’s now pushing up against 11,000.
In that sense, the rally that began in March 2009 is still showing signs of life. But the bigger question is: Will investors capitalize on it? Over the past year, fund flows have heavily favored bonds, and despite stocks’ strong performance, investors are still spooked by equity funds’ implosion during the downturn.
For investors looking to turn a quick buck, now may not be the ideal time to load up on stocks. Standard and Poor’s, for instance, issued a somber warning earlier this week: “It is way too late to chase the market,” its strategists said. If you have a bit of a longer time horizon, though, and are looking to make the plunge into--or back into--stocks, an obvious place to start is with funds that are tied in some way or another to the S&P 500.
Here are three options:
Jensen J (JENSX). At first glance, this fund’s portfolio appears to be little more than a list of the usual suspects, but a closer look reveals a bit more. Notably, the fund takes a very selective approach to blue chips, insisting that the companies it owns have superior cash flows and top-notch returns on equity. Its most stringent screen is that it will only put money in companies that have achieved a return on equity of at least 15 percent over each of the past 10 years. In other words, while its portfolio consists largely of the types of brand-name companies that anchor the S&P 500, there’s also an extra layer of quality assurance that can add value over the index if investors stick with this fund for the long haul. An important caveat, though, is that this fund will tend to slump a bit when riskier stocks are in favor.
Monetta Young Investor (MYIFX). There are scores of funds that use the S&P 500 as their benchmark. This one, though, is among the most creative. At any given time, half of its portfolio will be in exchange-traded funds that track the S&P 500, which means that investors will get solid broad-market exposure. At the same time, though, this fund also offers a bit of a twist, since most of the other half of its portfolio is in companies that are familiar to young children. That’s because one of the fund’s stated purposes is to help parents get their kids interested in investing. Apart from picking stocks that kids can readily recognize, the fund offers to mail shareholders finance-related games and activities for children and lets families accumulate rewards points that can help pay for college tuition.
Schwab S&P 500 Index (SWPPX). No surprises here. With a rock-bottom 0.09 percent expense ratio, this index fund is among the best options for average investors looking for passive exposure to the S&P 500. The fund’s strategy is straightforward: It buys stocks that comprise the S&P 500 and looks to replicate the index’s returns. Basically, there’s no real magic involved in running a passive fund that focuses on an index as compact as the S&P 500, so almost all of the various S&P index funds that are out there will get virtually identical returns before expenses. The true measure of an S&P 500 index fund, then, is how expensive it is. And by that metric, Schwab is the clear winner among mutual funds with low minimum investments. Another common way to track the S&P 500 is through ETFs. One popular option in this category is SPDR S&P 500 (SPY), which also has an expense ratio of 0.09 percent.