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5 Worst Mutual Funds So Far in 2012

Gold funds really have taken a beating

By Tom Taulli, InvestorPlace Writer & IPO Playbook Editor

Closed-End FundsDespite the year’s jarring volatility, the overall market hasn’t done so bad, with the S&P 500 making out 6% gains thus far. But that just means there’s been a few more winners than losers, and some of the losers have been bad.

The same can be said for the mutual fund industry. While a number have looked good so far, a number have produced terrible results. So which funds have fared the worst so far in 2012? Let’s take a look, but first, a couple rules:

  1. I only looked at funds with a minimum of $100 million in assets. Tiny funds can suffer devastating losses simply because the money managers usually have to deal with large outflows.
  2. The gold sector was by far the hardest hit so far — in stark contrast for the past decade, in which gold could seem to do no wrong. So, I also only took the worst fund in a category. If not, my list would have only consisted of gold funds!

After crunching the numbers, here are the losers that stood out:

Franklin Gold and Precious Metals

YTD Return: -28%

2012 isn’t an isolated incident, either. The Franklin Gold and Precious Metals Fund (MUTF:FRGOX), which has $2.3 billion in assets, actually had a bad 2011 as well, shedding more than 25% for the year.

This points to a big issue with gold funds: There can be little correlation between the price of gold and the miners. This fact was exaggerated even more in the returns of the Franklin fund.

While FRGOX does have large holdings in big mining names like Goldcorp (NYSE:GG) Randgold Resources (NASDAQ:GOLD), it also tends to invest in smaller operators — and unfortunately, these types of companies do not have the scale to manage the escalating costs of mining or the resources to pull off acquisitions, which help to boost reserves. With little protection, FRGOX is on the decline once more.

Rydex Inverse S&P 500 2x Strategy

YTD Return: -19%

The Rydex Inverse S&P 500 2x Strategy (MUTF:RYCBX) fund — now under the Guggenheim banner — was double trouble for investors. It is structured to gain 1% for every 2% drop in the S&P 500. Naturally, with the index up for the year, the fund has turned out to be a big loser.

This also shows the perils of buying a leveraged fund: Not only can you suffer heavy losses thanks to a fund’s multiplier, but — depending on rebalancing and once you add in fees — you can lose a whole lot more.

BlackRock Energy & Resources

YTD Return: -18%

The energy industry has been in bear mode for most of 2012, for both natural gas and crude oil. The slowing economy has been the main driver, and an increase of supplies isn’t helping.

These headwinds certainly have impacted the BlackRock Energy & Resources (MUTF:SSGDX) fund, which focuses on small- and mid-cap energy operators. Names like Consol Energy (NYSE:CNX) and Range Resources (NYSE:RRC) have weighed on the fund thus far.

However, SSGDX also has been dealing with another issue. Portfolio manager Dan Rice resigned in June because of allegations of conflicts of interests with a personal investment in a natural gas company. His loss could make it tougher for the fund to get back on track, at least in the short run.

New Alternatives

Return: -13%

The New Alternatives (MUTF:NALFX) is the first environmental mutual fund, getting its start 30 years ago. It invests in companies that promote recycling, alternative energy, pollution prevention and conservation. Some of its holdings include environmental management service company Veolia Environnement (NYSE:VE) and geothermal firm Ormat Holdings (NYSE:ORA).

NALFX’s poor performance in 2012 is no fluke, either. The fund has averaged an annual return of about -10% in the past five years.

While clean energy likely has a promising future down the road, adoption still has been glacial. Economic woes in the U.S. and Europe could put even more pressure on the industry because of these companies’ reliance on government subsidies.

Guggenheim L/S Commodities Strategy

Return: -10%

A managed futures fund invests in derivatives, such as futures contracts, swaps and options. A key advantage is flexibility, as the portfolio manager can go both long and short. The goal is to achieve absolute returns — that is, to get gains in any market environment.

But the strategy has not translated into gains for the Guggenheim L/S Commodities Strategy (MUTF:RYLEX) fund.

Of course, the fund has focused on commodities, which have seen lots of volatility this year. Plus, the fund’s returns are held back by significantly high costs, with fees of 2.67%.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of the upcoming book How to Create the Next Facebook: Seeing Your Startup Through, from Idea to IPO.  Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.

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