The nice folks at NerdWallet have produced a list of what they describe as "the 12 most expensive and worst-performing mutual funds." What follows is a list of fund names, ticker symbols (mostly) for specific shares and (frequently) inaccurate expense ratio reports. They report the worst of the worst as
1. Oppenheimer Commodity Strat. Total Return (QRACX): 2.2% e.r.
Actually QRACX is the "C" class for the Oppenheimer fund. Morningstar reports the e.r. at 2.09%. The "A" shares have a 1.26% e.r. Morningstar describes the "C" class ratio as "below average" and the "A" class as "low." How does Morningstar reach that conclusion? Well by comparing these fees to the category average of 1.32% but 2.09% is
obviously below . . . hey, wait! It ain't. What about the "group median expense" of 1.74%? No, not below that, either.
I queried Morningstar on the matter. Their first reply explained that "below average" expenses are those in the bottom 20th - 40th percentile. I've written back, asking how that applies to funds whose expenses are above average but whose label is "below average." Their second response: "The C shares are considered Above Average with the broad rank and Below Average on the distribution rank." It turns out that they have a third set of expenses, which are neither of the two reported on the website, called the "Morningstar Fee Level Group Median - Distribution," which is 2.40%. Okay ... there are 117 funds in the "broad commodity basket" group. Exactly one has an expense ratio about 2.40% and isn't that the very definition of median? "Second highest." So now I've written John Rekenthaler, who is wise and grouchy, to see if he can help me understand this.
Mr. R responded. "'Below average' means that QRACX has below average expenses for a C share that is an Alternative fund." And so if you were choosing between the "C" class shares of this commodity fund and the "C" shares of a leveraged-inverse equity fund and a multicurrency fund, you'd know that you were probably getting a bargain for your money. Why on earth you'd possibly benefit from the comparison of such of group of wildly incomparable funds remains unknown.
At least they're targeting the largest share class of the Oppenheimer fund, since the "C" shares have $68M in assets while the "A" shares have only $228M in . . . oh . . .
Okay: how about this: at least we can agree that all six of the Oppenheimer share classes produce pretty much suck results. Accounting for their various sales loads, over the last decade you'd have pocketed between 0.02% - 1.26% per year, before taxes, on your investment here which is only slightly worse than the 1.5% return on the average money market fund over the past decade. You can tell money markets are a good idea, since they represent 30% of the Oppenheimer fund's portfolio.
So NerdWallet mistakes classes for funds and, they report, "it seems it was an error on the part of our data provider." Morningstar might be a little unclear on the distinctions between "above" and "below." Oppenheimer, which has cycled through eight managers at the fund this decade, is doing the best they can. (sigh)
NerdWallet is a new operation, so you can understand their goof as a matter of a young staff, start-up stumbles and all that. It's less clear how you explain Investment News's
mindless reproduction of the results (what? verify stuff before we publish it? Edit for accuracy? Who do you think we are, journalists?) or MFWire's touting of the article (
Investment News Unveils Mutual Fund Losers List) which might be better-titled "Investment News Reproduces Another Press Release".
Before the Observer publishes a fund profile, we give the advisor a chance to review the text for factual accuracy. My standard joke is "I'm used to making errors of judgment, but I loathe making errors of fact and so would you please let us know if there are any factual misstatements or other material misrepresentations?" I entirely agree with NerdWallet's original judgment: these are pricey under-performers. I just wish that folks all around were a bit more fastidious about the facts.
Okay, now I'll go back to grading.
David
Comments
Send me a pile... I'll help!
Here's the story of QRACX's below-average expenses. The Oppenheimer fund is a "broad-basket commodity" fund but its expenses are not benchmarked against that group. If it were, it would be one of the 10 most expensive funds. Instead, it's benchmarked against its "fund level comparison group median." Briefly, it's compared against all "C" class shares of all types of "alternative investment" mutual funds.
There is an "alternatives" category in the Morningstar system (bear market, currency, inverse-leveraged, market neutral) but QRACX isn't one of those except for the purpose of expense comparisons.
David
Among these stratospherically priced shares, the Oppenheimer's 2.09% looks positively average. A truly select group of funds, in the worst sense of the word "select".
The e.r. is compared to the universe of all "C" class shares of all alternative funds. And so the putative peer group, for expense purposes, includes long/short equity, market neutral, managed futures, multi-alternative, currency and commodity funds. There's a managed futures fund with an e.r. just short of 10%, which is what helps this overpriced dog appear to be reasonable.
David