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Past Performance Poorly Predicts Future Performance, But Not With Municipal Bond Mutual Funds
According to a recent study by Financial Research Corp., the past performance of muni bond funds is a useful measure to use in predicting future performance.
Generally, the study concludes that mutual funds generating top-decile performance (that is, beating at least 90% of their peers, over a one-, three- or five- year period) stand a good chance of turning in above-average returns over the same period in the future.
Specifically, municipal bond funds with top-decile performance over a rolling five-year period beat the average muni bond fund 100% of the time over all five-year spans going forward, and they outperformed 70% of their peers five years out.
By comparison, top-performing domestic stock funds over a rolling one-year period beat the average domestic stock fund 67% of the time over the subsequent year, but only 45% of the time over three years, and only 32% of the time over five years.
Source: Investment News, October 29, 2001
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