If your financial advisor made you buy any of these "Mutual Fund Misfires of the Market" with high expenses and low returns, you need to reassess your advisor.
High fees coupled with poor results: It's a straightforward equation for an awful mutual fund. Some are more regrettable than others - and some are bad to the point that they have got a "Strong Sell" from our Zacks Rank, the lowest positioning of the almost 19,000 mutual funds we rank every day.
Below, you'll read about some of the funds included in our current list of "Mutual Fund Misfires of the Market." And if by chance you're invested in any of these misfires, we'll help and review some of our highest Zacks Ranked mutual funds.
3 Mutual Fund Misfires
Now, let's take a look at three market misfires.
AB Allocation Market Real Return 1 (AMTOX): 1.09% expense ratio and 0.75% management fee. AMTOX is classified as an Allocation Balanced fund, which seeks to invest in a balance of asset types, like stocks, bonds, and cash, and including precious metals or commodities is not unusual. With a five year after-expenses return of -2.52%, you're mostly paying more in fees than returns.
Russell Emerging Markets A (REMAX): REMAX is a Non US - Equity fund. Many of these funds like to allocate across emerging and developed markets, and will often focus on all cap levels. REMAX offers an expense ratio of 1.66% and annual returns of 0.02% over the last five years. Even if this fund can be positioned as a hedge during the recent bull-market, paying more in fees than returns over the long-term should never be an acceptable result.
American Funds ST Bond Fund of America 529A (CAAFX) - 0.73% expense ratio, 0.27% management fee. CAAFX is part of the Government Bond - Short fund category. Often seen as risk-free assets, these funds hold securities issued by the U.S. federal government and they focus on the short end of the curve. CAAFX has generated annual returns of 0.55% over the last five years. Ouch!
3 Top Ranked Mutual Funds
Now that you've seen the worst Zacks Ranked mutual funds, let's have a look at some of the highest ranked funds with the lowest fees.
MSIF Global Franchise I (MSFAX) is a winner, with an expense ratio of just 0.91% and a five-year annualized return track record of 11.24%.
DFA Enhanced US Large Company I (DFELX) has an expense ratio of 0.15% and management fee of 0.2%. DFELX is classified as a Large Cap Blend fund. More often than not, Large Cap Blend mutual funds invest in companies with a market cap of over $10 billion. Buying stakes in bigger companies offer these funds more stability, and are well-suited for investors with a "buy and hold" mindset. Thanks to yearly returns of 10.79% over the last five years, DFELX is an effectively diversified fund with a long reputation of solidly positive performance.
T. Rowe Price Institutional Large Cap Core (TPLGX) has an expense ratio of 0.56% and management fee of 0.55%. TPLGX is a Large Cap Growth mutual fund, and these funds invest in many large U.S. firms that are projected to grow at a faster rate than their large-cap peers. With yearly returns of 14.28% over the last five years, this fund is well-diversified with a long reputation of salutary performance.
Bottom Line
These examples underscore the huge range in quality of mutual funds - from the really bad to the astonishingly good. There is no reason for your advisor to keep your money in any fund that charges more than you get in return (unless they're getting something out of it, like a high commission).
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Zacks Investment Research