The Herald Bulletin

Afternoon Update

Local Business

May 25, 2013

'Big Joe' Clark: Abandon your investments at your own peril

Even after 25 years of helping people plan for their financial futures some things still shock me. There are what I call stragglers. Left behind accounts with money that some would deem insignificant compared to their other resources. It could be an old 401(k) plan or IRA. Perhaps it was even a $25-a-month contribution to a mutual fund. Not only are these stragglers tax traps now and certainly in the future but many times the performance is ignored and simply awful.

NerdWallet Investing analyzed over 13,000 of the largest mutual funds currently open to investors, in order to find the 12 most expensive yet worst performing mutual funds. The names may surprise you and the rationale for poor performance can sometimes be explained. Paying huge internal expenses is an entirely different story.

The worst performer based on NerdWallet’s findings was Oppenheimer Commodity Strategy Total Return Fund (QRACX) with an expense ratio of 2.22 percent and a five-year annualized return of negative 14.61 percent. Ouch! Does this make Oppenheimer a bad family of funds? Absolutely not! For the record, I am not a mutual fund fan, but you need to be able to lift the hood to understand the findings.

Many investors assume the managers of mutual funds will do their best under any circumstance to find the best investments. Some do and the professional world screams “style shift” at them when they go off the planned reservation. As a financial planner looking for asset classes that don’t necessarily go in the same direction (what we would call non-correlated) it is important for me that managers stay true to their job description.

The manager of any fund has the responsibility to ask in a fiduciary capacity for the trust that it manages. They are called upon to make the best possible decisions within the parameters of the investment playbook or prospectus. In the case of the aforementioned fund, it was a commodity fund. The manger was tasked with investing primarily in that investment space and any deviation would be known as “style shift.” The shift could occur from asset class size (large, mid or small cap) or sector (like saying you were invested in consumer discretionary stocks and buying industrial companies because they were performing better).

It is critical to understand the impact of what can happen to an investor who doesn’t understand the job function of the mutual fund manager. The manager does not know the individual investors and serves the trust that he or she is managing. Even if they have withdrawn their money from the fund because they recognize commodities in this case have had a challenging climate to succeed, they have no ability to call you and recommend you move your money to another strategy or fund.

When statements arrive in the mail, even those that seem to be relatively small and appear not worth your time and energy to inquire about, please think again. Don’t abandon your hard-earned dollars!

Joseph “Big Joe” Clark, whose column is published Sundays, is a certified financial planner. He can be reached at bigjoe@yourlifeafterwork.com or 640-1524.

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