TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

Mutual funds that invest in real estate stocks dominated our monthly list of worst-rated equity funds, reflecting a property market that continues to flounder.

Fifteen of the 25 stock mutual funds that received the lowest grades from TheStreet.com Ratings focus on real estate. All the portfolios lost more than half of their value in the year that ended March 31, earning them our worst grade, E-minus. Thousands of other funds offer better track records and lower risk than these "sell"-rated options.

TheStreet.com Ratings

The worst-rated fund of the group, the Kensington Strategic Realty Fund ( KSRAX), holds real estate investment trusts, or REITS. Key holdings include Simon Property Group ( SPG), Equity Residential ( EQR), Boston Properties ( BXP), Vornado Realty Trust ( VNO) and Public Storage ( PSA).

Businesses have been closing unprofitable locations to survive a brutal recession, cutting into rent revenue for commercial REITs. On the residential side, lower home prices are encouraging people to buy, hurting rents.

The list excludes nine ProFunds portfolios and two Rydex Investments funds that use derivatives to achieve leverage, a strategy that causes excessive volatility. The worst-rated fund would have been ProFunds Banks UltraSector Fund ( BKPIX), which has been reeling from Bank of America's ( BAC) decision to reserve another $6.4 billion for future loan losses.

Banks might remain reluctant to lend until they resolve troubled debt on their balance sheets. The International Monetary Fund says U.S. banks have realized losses on $920 billion of bad assets, almost half of the estimated $2.2 trillion total. This suggests we're half way through the banking crisis.

Unless you plan to hold a mutual fund's shares for at least five years, it might be wise to consider other investment options.

At TheStreet.com Ratings, A and B grades mean "buy," C equals "hold" and D or less means "sell."

Worst Rated Open-End
Stock Mutual Funds
Fund (Ticker) Overall Grade Reward Grade Risk Grade Objective Total Return 1 Year
Kensington Strategic Realty A (KSRAX) E- E- E- Sector - Real Estate -68.0%
Seligman LaSalle Div Real Estate A (SREAX) E- E- E- Growth & Income -66.8%
Embarcadero Small Cap Growth Fund (EMSMX) E- E- E- Growth - Domestic -53.5%
Third Millennium Russia Fund A (TMRFX) E- E- E- Emerging Market Equity -71.9%
Utopia Growth Fund (UTGRX) E- E- E- Growth - Domestic -64.2%
Morgan Stanley Real Estate A (REFAX) E- E- E- Sector - Real Estate -59.1%
Kensington Real Estate Secs A (KREAX) E- E- E- Sector - Real Estate -61.5%
Russell Real Estate Securities A (RREAX) E- E- E- Sector - Real Estate -56.5%
Guinness Atkinson Alt Energy Fd (GAAEX) E- E- E- Sector - Energy/Natural Res -63.5%
J Hancock II Real Estate Sec 1 (JIREX) E- E- E- Sector - Real Estate -58.9%
EII Realty Sec Fund Instl (EIIRX) E- E- E- Sector - Real Estate -57.4%
Alpine Intl Real Estate Y (EGLRX) E- E- E- Sector - Real Estate -70.0%
US Global Accolade East European (EUROX) E- E- E- Emerging Market Equity -66.6%
AssetMark Real Estate Securities (AFREX) E- E- E- Sector - Real Estate -62.5%
Pioneer Real Estate Shares A (PWREX) E- E- E- Sector - Real Estate -59.2%
Adelante US Real Estate Sec K (LLUKX) E- E- E- Sector - Real Estate -57.7%
MassMutual Premier Sm Captlzn Val A (MPNAX) E- E E- Small Cap -45.9%
J Hancock Intl Classic Value A (JHFAX) E- E E- Non-US Equity -50.7%
Buffalo Micro Cap Fund (BUFOX) E- E E- Small Cap -42.6%
Markman Core Growth Fund I (MTRPX) E- E E- Growth & Income -52.5%
Schneider Value Fund PPP (SCMLX) E- E E- Growth - Domestic -56.0%
REMS Real Estate Value Opp Fd (HLRRX) E- E E- Sector - Real Estate -53.4%
J Hancock Trust Classic Val Ser I (JECVX) E- E E- Growth - Domestic -48.9%
Legg Mason Opport Tr C (LMOPX) E- E- E Growth - Domestic -63.0%
Van Kampen Real Estate Sec A (ACREX) E- E- E- Sector - Real Estate -58.3%
Source: TheStreet.com Ratings. Data as of most recent month end.

Editor's Note: The writer own shares of the Alpine International Real Estate Fund as a long-term holding in a retirement account.

TheStreet.com Ratings, recently cited for Best Stock Selection from October 2007 through February 2009 , is an independent research provider that combines fundamental and technical analysis to offer investors tremendous value in volatile times. To see how your portfolio can use this research, click here now!

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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