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Turning Mutual Fund Losers into Winners
Turning Mutual Fund Losers into Winners
By, Ron DeLegge
May 15, 2008
How to zap underperformers from you life and your portfolio
 

SAN DIEGO (ETFguide.com) - Do you own any mutual fund deadbeats?

 

If you do, then there’s no time like the present to get your money back on track.  

 

How can you spot a deadbeat fund?

 

A good start would be to first understand what makes a mutual fund a loser.

 

One sign of a verifiable loser is a mutual fund that doesn’t consistently beat its benchmark.  

 

Just how much money is invested in these dark black holes of financial oblivion?  

 

According to a quarterly report called “Fabian’s Mutual Fund Lemon List”, an obscene $870 billion was invested in 2,144 underperforming mutual funds during the first quarter of the year. In other words, $870 billion of dead money awaits a resurrection that can’t come too soon.  

 

To get included on Fabian’s Lemon List, a mutual fund must lag its benchmark average for a period of one, three, and five years.

 

How could almost $1 trillion of money be so haphazardly invested?

 

"What we discovered this quarter is that many value fund managers were virtually asleep at the wheel when it came to steering clear of the hazards caused by the credit crisis," said the report’s author Doug Fabian.

 

Portfolio managers sleeping on the job?

 

It doesn’t sound good.

 

Among the financial wreckage of mutual fund losers during the first quarter was the Legg Mason Special Investment fund (LMASX), which sank 23.2 percent. Other big quarterly losers were the Schwab YieldPlus Select (PZFVX) which saw a sharp 19.8 percent decline. The long heralded media favorite Legg Mason Value fund (LMVTX) fell 19.7 percent.

 

With friends like these who needs enemies?

 

But wait, there’s more.

 

Fabian also lists the 10 largest mutual fund lemons which according to my fourth grade math represents an unappetizing $130 billion of underperforming money.

 

Anybody want some pizza and orange juice to go with them lemons?

 

If not, I put together a short list of better alternatives to these lousy performers.

 

Listed below are the ticker symbols of lower cost exchange-traded funds (ETFs) that match up with the same fund category of the mutual fund losers. Not only will you save yourself a few bucks on management fees, but you won’t have to worry about babysitting fund managers that like to sleep on the job. And besides, you’re the one that should be comfortably snoozing, not them.

 

If you discover you own mutual fund losers, here’s what I suggest: Go on a seek-and-destroy mission and eliminate them from your investments ASAP. By replacing the hogs and dogs with corresponding index ETFs you’ll do better than most investors.  

 

Also keep in mind that to invest in ETFs you’ll need to establish a brokerage account. This can be done in less than day or two with a discount broker.

 

Lastly, if you decide you enjoy eating lemons, don’t mix them with your pizza and orange juice – or your financial plan.   

Mutual Fund Lemons & Ticker Symbol

Corresponding ETF Ticker Symbols

Fund Category

Fidelity Equity-Income (FEQIX)

IWD, IVE, VTV, ELV, DLN

Large Cap Value

Templeton Growth A (TEPLX)

ACWI

World Stock

Fidelity Growth & Income (FGRIX)

SPY, IWB, XLG, ELR, VV

Large Cap Blend

Fidelity Dividend Growth (FDGFX)

SPY, IWB, XLG, ELR, VV

Large Cap Blend

Vanguard Windsor Fund (VWNDX)

IWD, IVE, VTV, ELV, DLN

Large Cap Value

Van Kampen Comstock A (ACSTX)

IWD, IVE, VTV, ELV, DLN

Large Cap Value

Vanguard Asset Allocation (VAAPX)

UEM

Moderate Allocation

Longleaf Partners (LLPFX)

SPY, IWB, XLG, ELR, VV

Large Cap Blend

Fidelity Investment Grade Bond (FBNDX)

BIV, GVI

Intermediate Term Bond

Vanguard Pacific Stock Index (VPACX)

AIA, PAF

Pacific Rim

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 Author Profile
Bullet Ron DeLegge
  ETFguide
  Editor
  Ron is the Editor of ETFguide.com and voice of the Index Investing Show, a weekly syndicated radio program. He's frequently quoted in the financial media on matters related to investing and he's made appearances on CNBC. Ron served as a financial advisor for 11 years and he grew up in Chicago.
  http://www.etfguide.com
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