Avoid These 3 Mutual Fund Misfires - April 06, 2020

Zacks Equity Research

Does your current advisor have your money invested in these "Mutual Fund Misfires of the Market" that charge high fees for low returns? If so, it may be time for a new 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.

Merk Hard Currency Investor (MERKX): This fund has an expense ratio of 1.26% and a management fee of 1%. Without even doing any in-depth analysis, just the fact that you are paying more in fees than you're earning in returns is reason enough not to invest. MERKX is included in the International - Bonds category. From major developed economies like Japan, Germany, and the UK to emerging giants such as India, China, and Brazil, International - Bonds funds invest in fixed income securities from a variety of nations, excluding the United States. The fund has lagged performance-wise, so perhaps a simpler index future investing strategy might be more effective.

American Funds ST Bond Fund of America 529C (CCAMX): CCAMX is a Government Bond - Short fund, and these funds hold securities issued by the U.S. federal government. This category focuses on the short end of the curve, and are seen as extremely low risk securities from a default perspective. CCAMX offers an expense ratio of 1.46% and annual returns of -0.1% 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.

Pacific Advisors Small Cap C (PGSCX): Expense ratio: 6.14%. Management fee: 0.75%. PGSCX is a Small Cap Value mutual fund option, which typically invest in companies with market caps under $2 billion. With annual returns of just -2.07%, it's no surprise this fund has received Zacks' "Strong Sell" ranking.

3 Top Ranked Mutual Funds

Since you've seen the most noticeably lowest Zacks Ranked mutual funds, how about we take a look at some of the top ranked mutual funds with the least fees.

Fidelity Japan Smaller Companies (FJSCX) is a fund that has an expense ratio of 0.93%, and a management fee of 0.69%. FJSCX is a Japan - Equity fund option, and these funds primarily invest in companies in one of the world's richest and most diversified economies, Japan. With yearly returns of 11.54% over the last five years, this fund clearly wins.

American Funds Growth Fund of America C (GFACX) has an expense ratio of 1.41% and management fee of 0.27%. GFACX is a Large Cap Growth option; these mutual funds purchase stakes in numerous large U.S. companies that are expected to develop and grow at a faster rate than other large-cap stocks. Thanks to yearly returns of 11.5% over the last five years, GFACX is an effectively diversified fund with a long reputation of solidly positive performance.

MassMutual Select Equity Opportunities R5 (MFVSX): Expense ratio: 0.84%. Management fee: 0.69%. MFVSX is part of the Large Cap Blend section, and these mutual funds most often invest in firms with a market capitalization of $10 billion or more. By investing in bigger companies, these funds offer more stability, and are often well-suited for investors with a "buy and hold" mindset. MFVSX has produced a 10.73% 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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