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3 Mutual Fund Misfires To Avoid In Your Retirement Portfolio - December 04, 2019

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.

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.

Oppenheimer SteelPath MLP Alph Plus C (MLPMX): Expense ratio: 3.55%. Management fee: 1.25%. After expenses, the 5 year return is -12.07%, meaning your fees are far higher than the fund's returns.

John Hancock2 Emerging Markets A (JEVAX). Expense ratio: 1.47%. Management fee: 1.25%. Over the last 5 years, this fund has generated annual returns of -0.01%.

Putnam Dynamic Risk Allocation B (PDRBX) - 1.9% expense ratio, 0.72% management fee. This fund has yielded yearly returns of 1.66% in the course of the last five years. Too bad!

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.

Eagle Mid Cap Growth R6 (HRAUX) is a fund that has an expense ratio of 0.65%, and a management fee of 0.52%. HRAUX 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 11.92% over the last five years, this fund clearly wins.

Capital Group US Equity (CUSEX) has an expense ratio of 0.43% and management fee of 0.43%. CUSEX is a Large Cap Growth mutual fund, and these funds invest in many large U.S. firms that are projected to grow at a faster rate than their large-cap peers. With annual returns of 10.61% over the last five years, this is a well-diversified fund with a long track record of success.

Principal Capital Appreciation R4 (PCAPX) has an expense ratio of 0.87% and management fee of 0.47%. PCAPX is classified as a Large Cap Blend fund. More often than not, Large Cap Blend mutual funds invest in companies with a market cap of over $10 billion. Buying stakes in bigger companies offer these funds more stability, and are well-suited for investors with a "buy and hold" mindset. With yearly returns of 10.76% over the last five years, this fund is well-diversified with a long reputation of salutary performance.

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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