Though mutual funds are already highly diversified by nature, not all of them are a good investment. In order to find the worst performing and most expensive funds, NerdWallet Investing analyzed 13,000 of the largest mutual funds currently open to investors with at least $125 million in net assets and a net expense ratio greater than 2%, to create a list of the top 12 mutual funds to avoid.
Not only did these funds perform poorly while charging a lot in fees, they also significantly underperformed their peers that in other asset classes.
The 12 Most Expensive and Worst Performing Mutual Funds
|Fund Name||Symbol||Style||5 year Annualized Return||Net Expense Ration|
|1. Oppenheimer Commodity Strategy Total Return Fund (Class C)||QRACX||Commodities Broad Basket||-14.61%||2.12%|
|2. Rydex Inverse Government Long Bond Strategy Fund (Class C)||RYJCX||Trading-Inverse Debt||-13.70%||2.40%|
|3. Ivy Global Natural Resources Fund (Class B)||IGNBX||Natural Resources||-12.60%||2.20%|
|4. Rydex Inverse S&P 500 Strategy Fund (Class C)||RYUCX||Bear Market||-12.06%||2.42%|
|5. Federated Prudent Bear Fund (Class C)||PBRCX||Bear Market||-10.48%||2.50%|
|6. DWS Gold & Precious Metals Fund (Class C)||SGDCX||Equity Precious Metals||-10.16%||2.03%|
|7. ALPS/Red Rocks Listed Private Equity Fund (Class A)||LPEFX||Financial||-9.45%||3.28%|
|8. Goldman Sachs Emerging Markets Equity Fund (Class C)||GEMCX||Diversified Emerging Mkts||-8.84%||2.51%|
|9. DWS Latin America Equity Fund (Class C)||SLAPX||Latin America Stock||-8.74%||2.53%|
|10. Dreyfus Emerging Markets Fund (Class C)||DCPEX||Diversified Emerging Mkts||-8.42%||2.57%|
|11. Rydex Precious Metals (Class C)||RYZCX||Equity Precious Metals||-8.27%||2.26%|
|12. AllianceBernstein International Value Fund (Class C)||ABICX||Foreign Large Value||-8.07%||2.17%|
Except for Rydex Inverse S&P Strategy Fund, all the funds listed above are actively managed funds. Actively managed funds have historically had a hard time beating the market index in large part due to the higher management fees charged by active managers. According to a recent NerdWallet Investing study, though active managers outperform the index by 0.12% before fees, because they then charge more in fees than the value they create, investors were left with 0.80% lower returns than index fund investors.
What Should Investors Do?
Expense Ratio: Investors should be sure to always look at a fund’s expense ratio to get a better sense of overall after-fee returns. If a fund lists an expense ratio over 2%, consider looking for a different fund.
5 Year Annualized Return: In addition, take a look at the fund’s 5 year annualized return to gain a true sense of past performance and to check whether the fund was able to consistently outperform the market.
Risk-Adjusted Return: Lastly, be sure to choose funds with a high risk-adjusted return rate.
What Are the Top Performing Funds?
To help investors, NerdWallet Investing compiled a list of the best mutual funds of the past decade by asset class and investment style.
By Neda Jafarzadeh, a financial analyst with NerdWallet Investing. NerdWallet Investing helps investors make better financial decisions including finding the best stock trading broker to trade online.