Garrison Keillor once quipped, "A good newspaper is never nearly good enough, but a lousy newspaper is a joy forever." Examining the history of a terrible mutual fund can be just as entertaining -- until you consider all the very real money its investors have lost. In this case, at least, there's a bright side: What some have called the worst mutual fund ever is shutting down, never to lose another dime. (We hope.)

Frontier Microcap (FEFPX) has lost an average of 37% each year over the past decade. If you had plunked $1,000 into this fund 10 years ago, you'd have roughly $11 left today.

Fees count
Amazingly, more than half of your losses as a shareholder in this fund would have come from fees, not poor management. Last time I checked, Frontier Microcap's expense ratio topped 18%, in addition to a 4.5% sales load. When even forking over 2% or 3% can seriously depress your results, paying 18% a year can be a recipe for disaster. Add a 4.5% bite every time you purchase new shares, and that disaster becomes an outright catastrophe.

How could any fund have such a ridiculously high fee? In this case, size matters. Good funds usually grow their assets under management, enabling them to spread their fixed costs -- salaries and other overhead -- over a bigger asset base. In theory, as a fund grows ever bigger, its fees should fall as a percentage of assets. Curiously enough, that often doesn't happen, perhaps because the managers grow fond of keeping a bigger slice of the pie for themselves.

Frontier Microcap always had a small pool of assets, meaning its managers had to charge more to cover their expenses. Once a measly $1.6 million, Frontier Microcap's asset base is down to just $53,000 now. Even an 18% cut of that leaves the managers less than $10,000.

Lessons galore
Let Frontier Microcap be an excellent reminder to keep an eye on your holdings. You don't want to find out that one of your funds has lost 30% of your money over each of the past few years. Fees deserve close monitoring, too. You want to see 1% or less for managed funds, and that cost ideally should fall as the fund grows. Consider any expense ratio of 2% or more a red flag worth investigating.

It's not hard to find great fund returns, even at low expense ratios. I've rounded up a few examples:


Expense Ratio

10-Year Avg. Ann. Return

Holdings Include

Clipper (CFIMX)



Texas Instruments (NYSE:TXN), Harley-Davidson (NYSE:HOG), Costco (NASDAQ:COST)

Janus Overseas (JAOSX)



Delta Airlines (NYSE:DAL), Celgene (NASDAQ:CELG), Research In Motion (NASDAQ:RIMM)

ColumbiaAcorn Z (ACRNX)



Southwestern Energy, Coach (NYSE:COH), Atwood Oceanics


Do you have a worst mutual fund or worst stock investment to tell us about? Please leave a comment below and tell us all about it!

Longtime Fool contributor Selena Maranjian owns shares of Costco, which is also a Motley Fool Inside Value pick and a Fool holding. Atwood Oceanics, Coach, and Costco are Motley Fool Stock Advisor recommendations. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.