While many investors and financial publications alike gravitate towards funds with a recent hot past - like last year - investment professionals prefer to look at the consistency of long-term past performance. But is long-term past performance any better at predicting future mutual fund success? I have been researching the answer since 1997.
I have examined the in-category performance of every equity mutual fund in every category during consecutive 5-year periods. The first survey looked at the returns of the period 1988-1992 with the follow up performance of 1993-1997. Since then, I have conducted ten such surveys. The conclusion — long-term past performance is terrible at predicting future fund success!
Not trying to be too demanding, I only asked top quartile funds from the first period to repeat top quartile performance in the second period. Combining all ten surveys, I found that only 21% of the top quartile funds of...
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