If your advisor has you invested in any of these "Mutual Fund Misfires of the Market" with high fees and low returns, you need to rethink your advisor.
The easiest way to judge a mutual fund's quality over time is by analyzing its performance and fees. Our Zacks Rank of over 19,000 mutual funds has identified some of the worst of the worst mutual funds you should avoid, the funds with the highest fees and poorest long-term performance.
First, let's break down some of the funds currently part of our "Mutual Fund Misfires of the Market." If you happen to have put your money into any of these misfires, we'll help assess some of our best Zacks Ranked mutual funds.
3 Mutual Fund Misfires
Now, let's take a look at three market misfires.
Invesco Long/Short Equity R6 (LSQSX): 1.17% expense ratio and 0.8% management fee. LSQSX is a Long Short - Equity option. These funds' investment strategy consists of minimizing overall market exposure, while at the same time taking long positions in equities that are expected to appreciate and short positions in equities that are projected to decline. With a five year after-expenses return of 0.42%, you're mostly paying more in fees than returns.
AQR Equity Market Neutral I (QMNIX): 1.27% expense ratio, 1.1%. QMNIX is a Market Neutral - Equity mutual fund. These portfolios usually hold 50% of their securities in a long position, as well as 50% in a short position. This fund has yearly returns of 0.62% over the most recent five years. Another fund liable of having investors pay more in charges than what they receive in return.
Goldman Sachs (NYSE:GS) Dynamic Allocation R (GDRFX) - 1.4% expense ratio, 0.79% management fee. GDRFX is a part of the Allocation Balanced fund category; these funds like to invest in a variety of asset types, finding a balance between stocks, bonds, cash, and sometimes even precious metals and commodities; they are mostly categorized by their respective asset allocation. GDRFX has generated annual returns of 0.03% over the last five years. Ouch!
3 Top Ranked Mutual Funds
Now that we've covered our "worst offender" list, let's take a look at some of Zacks' highest ranked mutual funds with some of the lowest fees you may want to consider.
American Funds Wash Mutl Invs R2E (RWEBX): 1.07% expense ratio and 0.23% management fee. RWEBX is a part of the Large Cap Value category, and invests in equities with a market capitalization of $10 billion or more, but whose share prices do not reflect their intrinsic value. With an annual return of 10.11% over the last five years, this fund is a winner.
Victory Sycamore Small Company Opportunity Y (VSOYX): Expense ratio: 1.07%. Management fee: 0.76%. VSOYX is a Small Cap Value fund, and these funds are known for investing in companies with market caps under $2 billion. VSOYX has managed to produce a robust 10.82% over the last five years.
DFA US Large Cap Equity Institutional (DUSQX): Expense ratio: 0.19%. Management fee: 0.15%. DUSQX 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. DUSQX has produced a 11% over the last five years.
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