6 Worst Performing Funds in 10 Years
Previously, we had discussed about the best performing funds over the last five years. Thanks to the Bull Run that happened in this timeframe, mutual funds tapped the benefits of stepped-up economic activities, rising business and consumer confidence, record corporate profits, recovering housing fundamentals and continued job creation. These injected optimism into the economy. Annually, real GDP was always in the green since 2009. The economic factors led the five funds to emerge as the top gainers (Read: Best Performing Mutual Funds Over the Last 1, 3 & 5 Years ).
In this article, we double the time span to 10 years and identify funds that have with consistency failed to deliver the goods. Surprisingly though, the funds are still around. Investment returns may not be profitable in all cases, but to have a fund that consistently underperforms is indeed a pain for investors.
Funds Must Get These Right
The responsibility of efficiently managing a fund is the province of a fund manager, but keeping a close watch on its performance is also the duty of the investor. Understanding the right opportunity to sell a mutual fund will either get the investor a handsome return or stop him/her from losing further.
Times of volatility require more proactive portfolio management and the 'buy and forget' strategy doesn't work. Investors have to keep a close eye on the mutual fund to see if the product is true to its strategy and providing significant gains.
Obviously investments are made for potential returns. If a fund is underperforming, investors may be tempted to offload it. However, a fund is not a short-term instrument. So, negative performance over a limited span should not be a trigger for a sell-off.
But it also means a fund must start performing at least in the mid-term. Considering a three-year threshold should be a prudent idea.
Fund Investing Benefits
Among other benefits, mutual funds also provide advantages of diversification and dollar cost averaging.
Money from individuals and even organizations are invested in stocks, bonds, or other assets covering diverse industries globally. It allows a small investor to invest in a basket of securities at one go. Mutual fund by itself is a hedge. Since it contains a diverse range of securities, it is a protection against losses made during a bearish market. An important fact to remember in this case is that such protection is lowered when one invests in a sector-specific fund. However, the excess risk undertaken is rewarded by a comparable rate of return.
Therefore, if a mutual fund underperforms the overall market in a period which includes both a downturn and an upswing, then it is definitely time to exit.
Dollar Cost Averaging
This is a strategy involving the purchase of a fixed amount of a security, fund shares in case of mutual funds, regardless of the prevailing price. Ultimately, shares are bought both at higher and lower prices over a period of time. This results in a lower average cost per share.
Such a strategy reduces the risk of allocating a large sum of money into a single fund. In certain cases, known as dividend reinvestment plans, investors plough back dividends received from the fund in return for additional shares.
The idea is to further reduce the risk involved in investing compared to a one-time investment in a mutual fund. So, if you have been following such a strategy over an extended period of time and still making losses, it is definitely time to pull out.
An investor may opt for a particular fund based on the strategy employed. Mutual funds therefore need to be actively managed by fund managers to stick to the strategy. A change in the fund's strategy may not match with investors' financial goals. Often, the change of a fund manager leads to a change in strategy.
So, investors need to keep track of the fund manager and a change in strategy, if any. There must be a re-evaluation and if a new strategy sounds less promising, it may be good enough reason to sell the mutual fund. However, an investor may want to hold it for some time to check if the new approach is bringing in gains.
Worst Performing Funds
Below we highlight funds that now have the worst absolute returns over 10 years. These funds have also consistently underperformed in the year-to-date, 1, 3 and 5 year periods. They also carry sales load. Most of the funds, however, are from Precious Metals or Energy categories. This isn't surprising as these sectors have been up against a multitude of headwinds lately. Energy funds particularly have had to put up with nose diving crude prices the past one year.
We have narrowed down our search based on Zacks Mutual Fund Ranks. The following funds carry either a Zacks Mutual Fund Rank #4 (Sell) or Zacks Mutual Fund Rank #5 (Strong Sell) as we expect them to underperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also takes into account the likely future success of the fund.
Rydex Precious Metals A ( RYMNX ) seeks growth of capital. Almost all of RYMNX's assets are invested in equity securities of US precious metals companies having small-to-medium capitalizations. RYMNX may also buy American Depositary Receipts (ADRs) for exposure to foreign precious metals companies and US government securities.
RYMNX currently carries a Zacks Mutual Fund Rank #5. The 10-year absolute loss stands at 61.7%. Its year-to-date and 1-year absolute losses are 32.6% and 46.3%, respectively. The 3- and 5-year annualized losses are a respective 34.1% and 23%. Annual expense ratio of 1.5% is higher than the category average of 1.42%. RYMNX carries a front end sales load of 4.75%.
DWS Gold & Precious Metals A ( SGDAX ) seeks maximum return by investing a lion's share of its assets in companies involved in gold, silver, platinum or other precious metals activities. The fund invests in both domestic and foreign companies including the ones in emerging economies.
SGDAX currently carries a Zacks Mutual Fund Rank #4. The 10-year absolute loss stands at 76.2%. Its year-to-date and 1-year absolute losses are 28.4% and 39.4%, respectively. The 3- and 5-year annualized losses are a respective 33.7% and 24.1%. Annual expense ratio of 1.2% is however lower than the category average of 1.42%. SGDAX carries a front end sales load of 5.75%.
BlackRock Energy & Resources Investor A ( SSGRX ) seeks capital appreciation over the long run. SSGRX invests the majority of its assets in small-cap companies related to sectors including Energy, Natural Resources and Utilities. SSGRX has no limit on the number of companies it can invest in, but it will invest in at least three countries.
SSGRX currently carries a Zacks Mutual Fund Rank #4. The 10-year absolute loss stands at 77.3%. Its year-to-date and 1-year absolute losses are 32.5% and 50%, respectively. The 3- and 5-year annualized losses are a respective 15.5% and 9.4%. Annual expense ratio of 1.31% is however lower than the category average of 1.45%. SSGRX carries a front end sales load of 5.25%.
Rydex Series Trust Energy Services A ( RYESX ) seeks growth of capital. The fund invests the majority of its assets in equities of small- to mid-cap Energy Services companies that are domestically traded. It also invests in derivatives. The fund may also buy ADRs for exposure to non-US energy companies.
RYESX currently carries a Zacks Mutual Fund Rank #4. The 10-year absolute loss stands at 29.5%. Its year-to-date and 1-year absolute losses are 31.3% and 51.2%, respectively. The 3- and 5-year annualized losses are a respective 15.5% and 6.2%. Annual expense ratio of 1.31% is however lower than the category average of 1.45%. RYESX carries a front end sales load of 5.25%.
Credit Suisse Commodity Return Strategy A ( CRSAX ) seeks to achieve returns relative to the Bloomberg Commodity Index Total Return's performance. CRSAX invests in commodity linked derivative instruments and fixed income securities. The fixed income securities usually have an average duration of one year or less and may prioritize investment-grade fixed income securities.
CRSAX currently carries a Zacks Mutual Fund Rank #4. The 10-year absolute loss stands at 58.5%. Its year-to-date and 1-year absolute losses are 16.9% and 27.2%, respectively. The 3- and 5-year annualized losses are a respective 16.1% and 9.2%. Annual expense ratio of 1.03% is however lower than the category average of 1.35%. CRSAX carries a front end sales load of 4.75%.
Rydex Dynamic Weakening Dollar A ( RYWDX ) seeks a return (excluding fees and expenses) that is 200% inverse of the US Dollar Index's performance on a daily basis. RYWDX involves in short sales of securities included in the US Dollar Index. The index measure the US dollar's performance against a range of currencies including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.
RYWDX currently carries a Zacks Mutual Fund Rank #4. The 10-year absolute loss stands at 47.5%. Its year-to-date and 1-year absolute losses are 12.4% and 21.5%, respectively. The 3- and 5-year annualized losses are a respective 12.9% and 8%. Annual expense ratio of 1.70% is lower than the category average of 1.96%. RYWDX carries a front end sales load of 4.75%.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Pick the best mutual funds with the Zacks Rank.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.