3 Mutual Fund Misfires To Avoid In Your Retirement Portfolio - February 18, 2020

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.

High fees coupled with poor results: It's a straightforward equation for an awful mutual fund. Some are more regrettable than others - and some are bad to the point that they have got a "Strong Sell" from our Zacks Rank, the lowest positioning of the almost 19,000 mutual funds we rank every 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.

Federated Government Income Securities A (FGOAX): 1% expense ratio and 0.6% management fee. FGOAX is part of the Government Mortgage - Intermediate fund section. Government Mortgage - Intermediate funds focus on the mortgage-backed security (MBS) market and securities that usually have at least three years to maturity but less than 10. With a five year after-expenses return of 0.93%, you're mostly paying more in fees than returns.

Thornburg Limited Term Municipal CA A (LTCAX): 0.93% expense ratio, 0.49% management fee. LTCAX is a Muni - Bonds 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. This fund has an annual returns of 0.91% over the last five years. Another fund guilty of having investors pay more in fees than returns.

Northeast Investors Trust (NTHEX) - 1.56% expense ratio, 0.5% management fee. NTHEX is a High Yield - Bonds option. These mutual funds are often known as junk bonds since they are below investment grade. This means they are at an elevated risk of default, at least when compared to their investment grade peers. NTHEX has generated annual returns of -0.51% over the last five years. Ouch!

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 Funds Growth Fund of America A (AGTHX): 0.63% expense ratio and 0.27% management fee. AGTHX 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. With an annual return of 11.14% over the last five years, this fund is a winner.

Fidelity Fund (FFIDX) has an expense ratio of 0.49% and management fee of 0.33%. FFIDX 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. With annual returns of 11.15% over the last five years, this is a well-diversified fund with a long track record of success.

AB Discovery Growth A (CHCLX) has an expense ratio of 0.95% and management fee of 0.61%. CHCLX is a Mid Cap Growth mutual fund. These funds aim to target companies with a market capitalization between $2 billion and $10 billion that are also expected to exhibit more extensive growth opportunities for investors than their peers. With yearly returns of 10.47% over the last five years, this fund is well-diversified with a long reputation of salutary performance.

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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