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Avoid These 3 Mutual Fund Misfires - February 27, 2020

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.

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.

MFS Inflation Adjusted Bond C (MIACX): 1.65% expense ratio and 0.49% management fee. MIACX is a Government - Bonds fund, which holds securities issued by the U.S. federal government. This category stretches across the curve, meaning the yields and interest rate sensitivity will vary. With a five year after-expenses return of 1.05%, you're mostly paying more in fees than returns.

Arrow DWA Balanced Fund A (DWAFX): 1.72% expense ratio, 1% management fee. DWAFX is classified as an Allocation Balanced fund, which seeks to invest in a balance of asset types, like stocks, bonds, and cash, and including precious metals or commodities is not unusual. This fund has an annual returns of 0.79% over the last five years. Another fund guilty of having investors pay more in fees than returns.

Templeton Emerging Markets Small Cap A (TEMMX): Expense ratio: 1.87%. Management fee: 1.35%. TEMMX 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 annual returns of just 1.47%, it's no surprise this fund has received Zacks' "Strong Sell" ranking.

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.

Direxion Monthly S&P 500 Bull 2X Investor (DXSLX) is a winner, with an expense ratio of just 1.35% and a five-year annualized return track record of 18.49%.

VY T. Rower Price Diversified Mid Cap Growth Advisor (IAXAX) has an expense ratio of 1.28% and management fee of 0.74%. IAXAX 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. Thanks to yearly returns of 12.1% over the last five years, IAXAX is an effectively diversified fund with a long reputation of solidly positive performance.

Columbia Select Large Cap Growth Z (UMLGX) has an expense ratio of 0.86% and management fee of 0.66%. UMLGX 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 annual returns of 11.79% 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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