|
|
|
|
This Year's Top Performing Mutual Funds Probably Won't Be Next Years Top Performers
oo many investors practice "rear view mirror" investing. That is, they decide where to invest their money based upon prior performance. This makes no sense, especially when choosing mutual funds, as data from Morningstar suggests. Today, in 1999, investors are tempted to chase the hot funds of 1998. We'll look at some of those funds with a word of caution before one considers investing in them.
Fallen Angels
Let's look at the top performers from 1997, and then examine how they performed in 1998, including how their 1998 performance compared to their peer group performance (on a scale of 1 to 100, with 100 being the worst and 1 being the best).
The top performing Growth category mutual fund in 1997 was American Heritage, returning a robust 75%. But, in 1998, the fund lost nearly all of that, -61%! That return placed American Heritage at the bottom of its peer group, with a ranking of 100.
Oakmark Select led the way in 1997 as the best performing Value category mutual fund. The fund gained 55%. The fund came back down to earth in 1998, returning 16%. Given that value funds suffered generally in 1998, Oakmark Select's 1998 return earned it a peer ranking of 3.
The top performing mutual fund in 1997 for the Blend category (stocks and bonds) was Hartford Capital Appreciation B. That fund returned 54% in 1997. But in 1998, the fund earned less than a money market fund, with 2.52%, and a peer ranking of 56.
The roller coaster ride was apparent with specialty funds and international funds. In the specialty fund category, 1997's leader was Pilgrim Bank & Thrift A, with a 64% gain. In 1998, the fund lost close to 2% and ranked 82 among its peers.
Even more excitement occurred with international funds. Thanks to the Russians, the Lexington Troika Dialog Russia mutual fund returned 67% in 1997. But winter came early for 1998 investors in the fund. The fund lost that and more, or 83%, in 1998. That performance earned the fund the worst peer ranking available, 100.
1998's Top Performers
Imagine a fund that returns nearly 200% in one year! Investors in the "Internet Fund" saw a 196% return. Before investors race to invest, however, they should consider that the fund was started in 1996 and the fund returned only a modest 13% in 1997.
Another high flyer in 1998 was the ProFunds Ultra OTC Inv. Fund. The fund gained 185%! But consider that the fund has existed only since 1997, and that it's present composition is 26% Stocks, 2% Cash and 72% "Other". Better read that prospectus very carefully to determine just how the fund was able to gain that 185%.
Finally, in the international stock category, Matthews Korea 1 was the best performer in 1998, returning 96%. Nonetheless, investors need above average returns to cushion them from, among other things, the lofty 2.5% expense ratio (due in part to the high turnover ratio of 113), as well as the past years' performance. This fund earned no high marks for its performance in 1997 (-65%), 1996 (-32%) and 1995 (-13%).
As one can see, choosing a mutual fund requires a great deal more effort than blindly picking last year's winner.
|
Sponsored by James J. Eccleston. This Web site contains material of general interest. It is neither intended to, nor constitutes, either legal advice or investment advice.
Always consult an attorney and/or investment adviser when building and protecting your wealth.
All content Copyright © 2010 Advocate Compliance Partners, Inc. except where noted. All rights reserved.
One North Franklin Street, Suite 2620, Chicago, IL 60606
Telephone 312-332-0000 | Fax 312-332-0003
|
|
|
|
|
