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How To Avoid The Worst Style Mutual Funds Q1 2018

David Trainer profile picture
David Trainer


  • The large number of mutual funds has little to do with serving your best interests.
  • Below are three red flags you can use to avoid the worst mutual funds.
  • The following presents the least and most expensive style mutual funds as well as the worst overall style mutual funds per our Q1'18 style ratings.

Question: Why are there so many mutual funds?

Answer: Mutual fund providers tend to make lots of money on each fund so they create more products to sell.

The large number of mutual funds has little to do with serving investors’ best interests. Below are three red flags investors can use to avoid the worst mutual funds:

1. Inadequate Liquidity

This issue is the easiest issue to avoid, and our advice is simple. Avoid all mutual funds with less than $100 million in assets. Low levels of liquidity can lead to a discrepancy between the price of the mutual fund and the underlying value of the securities it holds. Plus, low asset levels tend to mean lower volume in the mutual fund and larger bid-ask spreads.

2. High Fees

Mutual funds should be cheap, but not all of them are. The first step here is to know what is cheap and expensive.

To ensure you are paying at or below average fees, invest only in mutual funds with total annual costs below 1.78%, which is the average total annual cost of the 6527 U.S. equity Style mutual funds we cover. The weighted average is lower at 1.05%, which highlights how investors tend to put their money in funds with low fees.

Figure 1 shows American Growth Fund Series One (AMRAX) is the most expensive style mutual fund and Vanguard 500 Index Fund (VFFSX) is the least expensive. American Growth Fund (AMRAX) (AMRBX) (AMRGX) (AMRCX) provides four of the most expensive mutual funds while Fidelity (FFSMX) (FSKAX) (FXAIX) mutual funds are among the cheapest.

Figure 1: 5 Most and Least Expensive Style Mutual Funds

Sources: New Constructs, LLC and company filings

Investors need not pay high fees for quality holdings. Vanguard 500 Index Fund (VFFSX) is the best ranked style

This article was written by

David Trainer profile picture
We aim to help investor make more intelligent capital allocation decisions. Our research is driven by proven-superior fundamental data, models and equity/credit ratings.

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