Hulbert: Chasing Short-Term Performance in Mutual Funds Pays Off

Monday, 29 Apr 2013 09:15 AM

By Dan Weil

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Financial commentators constantly warn investors not to flock to hot mutual funds that have experienced great short-term success, because that success may not last for the long term.

Well it turns out those commentators are all wet, says Mark Hulbert, editor of the Hulbert Financial Digest.

“One of the best methods for picking mutual funds ignores the longer term altogether,” he writes in The Wall Street Journal.

Editor's Note:
 
Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

Out of the dozens of stock mutual-fund advisory services his publication tracks, the top performer over the last 20 years is one that focuses only on returns over the previous 12 months. And it emphasizes returns over the last one, three and six months.

That service is called No Load FundX and is edited by Janet Brown. It has generated an 11 percent annualized return over those past two decades, beating the 8.6 percent return for the overall stock market.

“The somewhat surprising investment implication: it pays to avoid mutual funds whose recent performance has begun to slip, no matter how good their performance might have been in previous years,” Hulbert writes.

“Similarly, it pays to favor funds with stellar recent returns, even if their longer-term performance is dismal.”

However, Brown recommends choosing stock funds with risk levels that are similar to the overall market and that focus on long-term capital appreciation.

“Other things being equal, choosing a lower-fee fund is a good idea,” Brown tells Hulbert. “But other things are rarely equal, and one should not automatically pick a cheaper fund if its recent performance is poor.”

A recent story in U.S. News & World Report listed several important factors for mutual fund investors to keep in mind. First is that only 24 percent of active managers beat their market index over the past 10 years, according to InvestingNerd. In addition, large funds generally outperform small ones.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

© 2014 Moneynews. All rights reserved.

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