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7 funds with high fees, low returns

Under-achieving 'piggies' eat more

"Everywhere there's lots of piggies

Living piggy lives

You can see them out for dinner

With their piggy wives

Clutching forks and knives to eat their bacon"

-- George Harrison

The mutual fund industry's piggies are eating your bacon.

Liberally sprinkled among the many solid fund values out there are dismal underachievers that eat more than their fair share in fees. The only people making decent money off these funds are the fund firms that offer them.

If you're looking for something scandalous in the fees charged by fund companies, this is it. Never mind that Canadian fund fees are modestly higher than in the United States, or that the average Canadian equity fund management expense ratio is up to 2.84 per cent (small, uneconomical funds inflate this number). The worst offence is that fund firms are holding billions of their customers' money in substandard junk with an inflated cost of ownership.That's not investing, it's fee extraction.

What do we do about these atrocious funds? Two things -- identify and avoid. To get you going, we've assembled a list of seven with a combined $3.1-billion in assets. Read about 'em and weep.

Ethical Money Market

Assets: $137.4-million; MER: 1.42 per cent; Category average MER: 1.10 per cent.

How rich. An ethical fund that charges a rapacious MER for that most basic of investing commodities, the money market fund. This fund has been a consistently below-average performer by just about the same margin that its MER exceeds the category average.

AGF American Growth Class

Assets: $1.2-billion; MER: 3.07 per cent; Category average MER: 2.78 per cent.

The management expense ratio here is a touch higher than it might be because this is a corporate class fund, which means it's part of a group of funds you can switch in and out of in non-registered accounts without triggering taxes. What's irksome is that unitholders are subjected to a premium MER on a fund that had a compound average annual loss of 9.5 per cent for the five years to Feb. 29. At least AGF is making money.

Commonwealth World

Balanced

Assets: $90.2-million; MER: 3.51 per cent; Category average: 2.99 per cent.

The Wayne Gretzky offund managers couldn't make good money consistently for investors while dragging around an MER this bloated. Returns have been well below average for almost any time frame.

Investors Income Portfolio

Assets: $638.8-million; MER: 2.17 per cent; Category average: 1.83 per cent.

Fact: Investors Group is a high-MER fund company. Some funds in the family make out okay despite this, but there are others like Investors Income Portfolio where clients get whacked. Greed bonus points are awarded here because the income portfolio is actually a fund-of-fund product based on three Investors income funds, each with a cheaper MER.

Mackenzie Universal US Growth Leaders

Assets: $77.2-million; MER: 2.97 per cent; Category average: 2.78 per cent.

How on earth does Mackenzie justify charging an inflated MER on a fund that is into its fifth straight year of below-average returns? This is your classic fee-extraction machine masquerading as a mutual fund.

RBC International Equity

Assets: $133.6-million; MER: 3.03 per cent; Category average: 2.71 per cent.

The no-load funds from bank fund families are usually a comparative bargain in terms of their MERs, but this sucker's in the stratosphere. The returns here would look somewhat more competitive with an MER closer to the average for this category.

Investors Retirement Growth Portfolio

Assets: $1.1-billion (as of Sept. 30, 2003); MER: 3.10 per cent; Category average: 2.84 per cent.

These guys, again? Yup, and they're running the same scheme as with Investors Income Portfolio -- bundle up a few complementary funds and charge a premium MER.

rcarrick@globeandmail.ca

© 2007 The Globe and Mail. All rights reserved.

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