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3 Mutual Fund Misfires to Avoid - October 30, 2019

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.

High fees plus poor performance: It's a pretty simple formula for a bad mutual fund. Some are worse than others - and some are so bad that they have earned a "Strong Sell" on the Zacks Rank, the lowest ranking of the nearly 19,000 mutual funds we rank daily.

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.

Western Asset Short Duration High Income C (LWHIX): Expense ratio: 1.72%. Management fee: 0.55%. After expenses, the 5 year return is 1.52%, meaning your fees are far higher than the fund's returns.

BTS Tactical Fixed Income A (BTFAX). Expense ratio: 1.49%. Management fee: 0.55%. Over the last 5 years, this fund has generated annual returns of 0.66%.

Brandes International Small Cap Equity C (BINCX): This fund has an expense ratio of 2.11% and management fee of 0.95%. BINCX is a part of the Non US - Equity fund category, many of which will focus across all cap levels, and will typically allocate their investments between emerging and developed markets. With an annual average return of -1.56% over the last five years, the only thing absolute about this absolute return fund is that it absolutely deserves to be on our "worst offender" list.

3 Top Ranked Mutual Funds

There you have it: some prime examples of truly bad mutual funds. In contrast, here are a few funds that have achieved high Zacks Ranks and have low fees.

Nuance Mid Cap Value Fund Institutional (NMVLX): Expense ratio: 0.93%. Management fee: 0.75%. NMVLX is a Mid Cap Value mutual fund, which targets medium-sized companies with a market cap between $2 billion and $10 billion. This fund has achieved five-year annual returns of an astounding 10.93%.

Diamond Hill Large Cap Fund Y (DHLYX) has an expense ratio of 0.55% and management fee of 0.5%. DHLYX 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. With annual returns of 11.05% over the last five years, this is a well-diversified fund with a long track record of success.

Loomis Sayles Small Cap Growth N (LSSNX) has an expense ratio of 0.82% and management fee of 0.75%. LSSNX is one of many Small Cap Growth mutual funds; these funds tend to create their portfolios around stocks with market capitalization of less than $2 billion. With annual returns of 11.3% over the last five years, this fund is a well-diversified fund with a long track record of success.

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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