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3 Mutual Fund Misfires To Avoid In Your Retirement Portfolio - November 26, 2019

Zacks Equity Research

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.

The easiest way to judge a mutual fund's quality over time is by analyzing its performance and fees. Our Zacks Rank of over 19,000 mutual funds has identified some of the worst of the worst mutual funds you should avoid, the funds with the highest fees and poorest long-term performance.

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.

Western Asset Short Duration High Income C (LWHIX): 1.71% expense ratio and 0.55% management fee. LWHIX 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. With a five year after-costs return of 1.52%, you're for the most part paying more in charges than returns.

AQR Multi Strategy Alternative R6 (QSARX). Expense ratio: 1.87%. Management fee: 0.55%. Over the last 5 years, this fund has generated annual returns of -1.04%.

Templeton Institutional Foreign Equity Series (TFESX) - 0.97% expense ratio, 0.76% management fee. TFESX 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. TFESX has generated annual returns of 0.13% over the last five years. Ouch!

3 Top Ranked Mutual Funds

Now that you've seen the worst Zacks Ranked mutual funds, let's have a look at some of the highest ranked funds with the lowest fees.

Fidelity Advisor Growth Opportunit (FAOFX) is a fund that has an expense ratio of 0.01%, and a management fee of 0%. FAOFX 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 yearly returns of 16.82% over the last five years, this fund clearly wins.

AB Discovery Growth Z (CHCZX) has an expense ratio of 0.66% and management fee of 0.61%. CHCZX is a Mid Cap Blend mutual fund, and usually features a portfolio with stocks of various styles and sizes, allowing for diversification within a strategy that focuses on mid cap companies. Thanks to yearly returns of 10.51% over the last five years, CHCZX is an effectively diversified fund with a long reputation of solidly positive performance.

DoubleLine Shiller Enhanced CAPE I (DSEEX) is an attractive fund with a five-year annualized return of 13.96% and an expense ratio of just 0.55%. DSEEX 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.

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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