EC 6 Gigantic Bond Funds With High Fees And Poor Performance

The rise of low-cost, index-based options in the mutual fund and ETF space has created a truly amazing environment for investors. Companies like Vanguard, BlackRock, and Charles Schwab have created ways for investors to access diversified pools of stocks and bonds for very little (to almost zero) cost.This translates into more money that stays in your accounts and compounds over time.

Yet despite this advantage, there is still an insane amount of money in actively managed mutual funds with terrible performance. I shake my head whenever I screen for gigantic funds with billions under management that have ripped off investors with exorbitant fees and lackluster performance.

Many of these funds have been around for decades and do a poor job of disclosing their track record versus a benchmark or other industry peers. Furthermore, they love to hide behind multiple share classes and opaque expense reporting to further cloud the picture.

The majority of the active versus passive debate seems to hone in on stock-picking managers who have failed to live up to expectations. However, there are also a plethora of large bond funds that should be scrutinized as well.

I’m not talking about the specialized funds with “strategic”, “absolute”, “unconstrained” or “income” in their names either. You can expect those unconventional strategies to take a different path than a typical fixed-income benchmark. The funds on this list are all meant to be diversified, core positions that act like a typical bond, yet have failed to deliver results that justify their costs.

Principal Core Plus Bond C (PBMCX)

Exp Ratio: 1.75% 30-Day SEC Yield: 1.05%Assets: $4 billionSales Charge: 1%

If the 1.75% expense ratio of an intermediate-term bond fund doesn’t catch your eye, I don’t know what else will. This very costly C-share mutual fund from Principal has $4 billion invested in a wide-ranging array of government, mortgage, and corporate debt.

It’s essentially a broad basket of U.S. bonds that is trying to meet or beat a diversified index such as the iShares Core U.S. Aggregate Bond ETF (AGG). The difference is that AGG only charges 0.08% per year and you know exactly what you own inside of it.

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