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Fund analysts call worst ever is shutting down

If you'd invested $1,000 in Frontier Microcap ten years ago, you'd have enough left over to order a pizza.
/ Source: The Associated Press

If you'd invested $1,000 in Frontier Microcap ten years ago, you'd have enough left over to order a pizza. But $11.35 might not get you any toppings. And to make matters worse, more than half your money would have gone toward fees.

Many analysts consider the mutual fund the worst ever, based on long-term performance and costs. So it's a good thing the fund is closing down. It will soon return the $53,157 it has left — down from a peak of around $1.6 million in its mid-90's heyday — to its 87 remaining investors.

Microcap investing is difficult, because stocks with market values around $400 million or lower tend to be more volatile then their larger brethren. Investing in the category also takes careful research, because microcap companies aren't closely followed by Wall Street.

But the fund's 36.8 percent annual loss over the last ten years makes it the poorest performer over that period, even compared with microcap peers.

Since 1993, it made money in only two years — 1999 and 2009. The fund's owners, Freedom Investors Corp., even tried out a 20-year-old stock-picker in 2003. But its weak performance meant it was never really able to attract new investors.

Adam Bold, founder of The Mutual Fund Store, has a theory on why the fund has done so badly. "Their theory has been — load up on speculative, low-priced stocks and hope for a home run," he said. "You would have to go out of your way to do as badly as this fund."

Fund manager Joel Blumenschein offered another reason. Since the fund was never able to attract new investments, its fees skyrocketed and hurt returns. Fees fluctuate with the size of a fund, and are included in performance calculations. Blumenschein also blamed regulatory and market conditions, and said Freedom Investors incurred sizable losses over the last few years as it tried to keep the fund going.

"Sometimes, when you do everything right, it still blows up in your face," he said. "It still bothers me that people lost money."

While Frontier Microcap was a lemon for its investors, its small size means not that many people were hurt. Its closure clears the way for another winner of the dubious title of worst fund ever. The funds on this list in the box above were nominated by Bold and Lipper senior research analyst Jeff Tjornehoj. They are all much larger than Frontier Microcap.

While long-term performance does not guarantee future results, it can be a good predictor. That's one reason to turn from the names on this list. Their high costs are another good reason. For investors in these funds, it might be time to go shopping.