Which securities to trade?
U.S. no-load mutual funds have many advantages:
- Many different underlying assets: U.S. stocks, bonds, foreign stocks, gold, etc.
- Low transaction costs: no slippage and no spread.
- SEC rules ensure that mutual funds are not extremely high-risk.
But managers typically prohibit rapid switching when it exceeds 1% of assets.
- At this level switching may affect buy/sell decisions on securities in a fund portfolio.
The impossibility of large-scale short-term fund trading means that inefficiencies (i.e. profitable patterns) may persist in mutual funds.
- Most of the 3000+ funds are not followed closely by many experts.