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3 Mutual Fund Misfires to Avoid - November 19, 2019

Zacks Equity Research

You may need to start looking for a new financial advisor if your current one has put any of these high-fee, low-return "Mutual Fund Misfires of the Market" into your portfolio.

How can you tell a good mutual fund from a bad one? It's pretty basic: If the fund has high fees and performs poorly, it's not good. Of course, there's a range - but when a mutual fund earns a Zacks Rank of #5 (Strong Sell) that means it's among the worst of roughly 19,000 funds we rate each day.

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.

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Aquila Tax-Free Fund of Colorado C (COTCX): 1.65% expense ratio and 0.5% management fee. COTCX is a Muni - Bonds mutual fund; these funds invest in debt securities issued by states and local municipalities, which are typically used to pay for infrastructure construction, schools, and other government functions. With a five year after-expenses return of 1.44%, you're mostly paying more in fees than returns.

BlackRock Eurofund A (MDEFX): MDEFX is a Europe - Equity mutual fund investing in stocks across the vast European continent. MDEFX offers an expense ratio of 1.39% and annual returns of -1.02% 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.

Clearbridge International Value C (SBICX): This fund has an expense ratio of 2% and management fee of 0.75%. SBICX is a Non US - Equity option, focusing their investments acoss emerging and developed markets, and can often extend across cap levels too. With an annual average return of -2.48% 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.

T. Rowe Price Mid-Cap Growth Fund (RPMGX) is a winner, with an expense ratio of just 0.74% and a five-year annualized return track record of 13.17%.

Fidelity Advisor Technology I (FATIX) has an expense ratio of 0.76% and management fee of 0.54%. FATIX is part of the Sector - Tech mutual fund category that invests in technology and lets investors own a stake in a notoriously volatile sector, but with a much more diversified approach. Thanks to yearly returns of 17.39% over the last five years, FATIX is an effectively diversified fund with a long reputation of solidly positive performance.

JPMorgan Large Cap Growth A (OLGAX) is an attractive fund with a five-year annualized return of 12.77% and an expense ratio of just 0.93%. OLGAX 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.

Bottom Line

So, there you have it - if your advisor has you invested in any of our "Mutual Fund Misfires of the Market," there is a good probability that they are either asleep at the wheel, incompetent, or (most likely) lining their pockets with high fee commissions at your financial expense.

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Zacks Investment Research