3 Mutual Fund Misfires To Avoid - March 27, 2020

If your financial advisor made you buy any of these "Mutual Fund Misfires of the Market" with high expenses and low returns, you need to reassess your advisor.

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.

Below, you'll read about some of the funds included in our current list of "Mutual Fund Misfires of the Market." And if by chance you're invested in any of these misfires, we'll help and review some of our highest Zacks Ranked mutual funds.

3 Mutual Fund Misfires

Now, let's take a look at three market misfires.

Eagle MLP Strategy C (EGLCX): This fund has an expense ratio of 2.4% and a management fee of 1.25%. 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. EGLCX is classified as a Sector - Energy mutual fund. Throughout the massive global energy sector, these funds hold a wide range of quickly changing and vitally important industries. The fund has lagged performance-wise, so perhaps a simpler index future investing strategy might be more effective.

Neuberger Berman Absolute Return Multi Manager I (NABIX): NABIX 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. NABIX offers an expense ratio of 1.98% and annual returns of 0.76% 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.

Ascendant Deep Value Convertibles A (AEQAX): This fund has an expense ratio of 2.24% and management fee of 1.15%. AEQAX is a Global - Equity mutual fund, which invests their assets in large markets, leveraging the global economy. With an annual average return of -0.55% 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.

American Beacon SGA Global Growth Investor (SGAPX): Expense ratio: 1.19%. Management fee: 0.8%. SGAPX is a Global - Equity mutual fund. These funds invest in large markets like the U.S., Europe, and Japan, and operate with very few geographical limitations. This fund has achieved five-year annual returns of an astounding 13.8%.

Oppenheimer Discovery I (ODIIX) has an expense ratio of 0.67% and management fee of 0.63%. ODIIX 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 11.74% over the last five years, this is a well-diversified fund with a long track record of success.

Nationwide Growth Fund IS (NGISX): Expense ratio: 0.72%. Management fee: 0.45%. NGISX is a part of the Large Cap Growth mutual fund category, which invest in many large U.S. companies that are expected to grow much faster compared to other large-cap stocks. NGISX has produced a 13.14% 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