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Avoid These 3 Mutual Fund Misfires - January 31, 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.

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.

American Century Short Term Government R (TWARX): This fund has an expense ratio of 1.06% and a management fee of 0.54%. 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. TWARX 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. The fund has lagged performance-wise, so perhaps a simpler index future investing strategy might be more effective.

Goldman Sachs Dynamic Allocation C (GDCFX): 1.92% expense ratio, 0.79% management fee. GDCFX is an Allocation Balanced mutual fund. Allocation Balanced funds look to invest across asset types, like stocks, bonds, and cash, and including precious metals or commodities is not unusual; these funds are mostly categorized by their respective asset allocation. This fund has an annual returns of -0.54% over the last five years. Another fund guilty of having investors pay more in fees than returns.

Leigh Baldwin Total Return Fund (LEBOX): This fund has an expense ratio of 1.12% and management fee of 0.45%. LEBOX 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 an annual average return of -0.65% 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.

Victory Sycamore Small Company Opportunity I (VSOIX) is a fund that has an expense ratio of 0.92%, and a management fee of 0.76%. VSOIX is a Small Cap Value mutual fund option, which typically invest in companies with market caps under $2 billion. With yearly returns of 11.03% over the last five years, this fund clearly wins.

Columbia Select Large Cap Growth R (URLGX) has an expense ratio of 1.33% and management fee of 0.66%. URLGX 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 11.22% over the last five years, URLGX is an effectively diversified fund with a long reputation of solidly positive performance.

VY T. Rowe Price Diversified Mid Cap Growth S2 (IAXTX) has an expense ratio of 1.18% and management fee of 0.74%. IAXTX is a Mid Cap Growth mutual fund. These mutual funds choose companies with a stock market valuation between $2 billion and $10 billion. With annual returns of 12.2% over the last five years, this fund is a well-diversified fund with a long track record of success.

Bottom Line

Along these lines, there you have it - if your financial guide has you put your money into any of our "Mutual Fund Misfires of the Market," there is a strong likelihood that they are either dormant at the worst possible time, inept, or (in all probability) filling their pockets with high fee commissions at the cost of your financial objectives.

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