10 bottom-of-the-barrel funds: High charges to lose your money

Dollars & Sense

March 16, 2003|By Russel Kinnel | Russel Kinnel,MORNINGSTAR.COM

Two weeks ago I looked at the top performers of the past 10 years, so now it's time to look at the bottom 10:

Frontier Equity. Thanks to huge expenses and crummy stock selection, this fund has lost an annualized 26.08 percent over the past 10 years. The fund has the highest expense ratio in our database at an obscene 32.0 percent. If that expense ratio is held constant and the underlying portfolio is unchanged, the fund's net asset value (the market value of one share) would fall below a penny in 10 years and would slip below half a penny in 12 years.

2. American Heritage. Over the past 10 years, this fund has shrunk 23.5 percent annualized. It boasts a nasty 12.61 percent expense ratio. Ten years ago, the fund had $150 million in assets, but it still charged 2.1 percent in expenses. The fund has bet its fate on a tiny biotech stock called Senetek (currently 72 percent of assets).

3. Apex Mid Cap Growth. This fund's 2.7 percent expense ratio was a good tip-off that trouble was on the way. Now it has grown above 7 percent, and the fund has lost 17.07 percent annualized over the past 10 years. This fund makes market-timing calls and will go short on occasion. The bear market would have seemed a golden opportunity for it to make up ground, but it got hit worse than most funds.

4. Ameritor Investment. You may know the Ameritor funds better by their old name: Steadman. The complex has been notorious for its underperformers as high costs and awful management have led to horrific losses. The fund has lost an annualized 13.37 percent, due in part to an 8.83 percent expense ratio. They've had run-ins with the SEC in the past but still managed to stick around.

5. U.S. Global Investors Gold Shares. This fund put up a big 81 percent return last year yet it still has lost an annualized 8.94 percent over the past 10 years. A brutal 5.79 percent expense ratio hasn't helped. As do most of the funds on this list, it has a very concentrated portfolio that leads to volatile performance.

6. Dreyfus Premier Aggressive Growth A. Costs aren't to blame for this fund's 8.44 percent 10-year annualized loss. Instead, it was sunk by questionable investments. Then-manager Michael Schoenberg invested in illiquid, super-speculative stocks that were being promoted by the same organization. Short sellers caught on to this and raised some serious issues about a conflict of interest. Dreyfus removed Schoenberg, but the fund's problems continued because Schoenberg's replacement had to unload those illiquid stocks into a market that knew Dreyfus was selling. The fund has been a respectable performer recently.

7. Dimensional Japanese Small Company. This fund is neither costly nor poorly run. It simply reflects the fact that Japanese small caps suffered big losses in the mid-1990s. Obviously, few individuals need a fund dedicated to Japanese small caps, and this fund's returns (minus 6.31 percent annualized over the past 10 years) illustrate the reason why you wouldn't want to sink a sizable piece of your portfolio into such a narrow fund.

8. Ameritor Security Trust. Another Ameritor success story, this fund has lost 6.16 percent annualized over the past 10 years.

9. American Growth D. Manager Robert Brody has been at the helm since 1958, but all that experience hasn't led to good results. The fund has lost an annualized 6.01 percent over the past 10 years, thanks to a remarkably poorly executed market-timing strategy. It has moved into cash just before rallies and into stocks just before sell-offs. Its 2.84 percent expense ratio doesn't help, either.

10. Templeton Pacific Growth A. Templeton has noticed how awful this fund has been and plans to merge it away. Part of the record is due to the poor performance of Asian stocks, but this fund has made the worst of it with weak picks and high costs. It has a 10-year annualized return of -5.56 percent.

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