Does Consistency Predict Fund Performance?

December 2004
Journal of Financial Planning;Dec2004, Vol. 17 Issue 12, p20
Academic Journal
This article deals with the findings of a study conducted by Morningstar in 2004 regarding the consistency of mutual fund performance in the U.S. The consistency of mutual fund performance is the percentage of times a fund outperforms the average of its peers. It is a predictor of future performance under limited circumstances, says a study by Morningstar. The study analyzed nine diversified U.S.-stock fund categories, three large-capitalization foreign-stock categories, and intermediate and intermediate-government bond fund categories. It identified the consistent performers in five years' worth of rolling one-year returns ending in June 1999, sorted them into deciles, and then examined how they did in the subsequent five years compared with funds that had best total returns for five years. Consistency was a better predictor of superior returns for the subsequent five-year period versus merely looking at trailing five-year results. Consistency was most predictive for large-capitalization and bond funds, and the least effective for small and mid-capitalization. But the advantage was small, on average, and the results generally worked only for the top decile. Trailing returns for lower deciles were about as reliable as consistency. Morningstar felt that the predictive power would be better in more normal times than the past ten years.


Related Articles

  • Big bet investing. Kadlec, Daniel; Eisenberg, Daniel // Time;9/14/1998, Vol. 152 Issue 11, p83 

    Examines the benefits and drawbacks of concentrated stock funds. Diversification in investments; Why many funds fail to keep pace with the market; Preference for passive funds such as Vanguard Index 500; Attention given to big-bet funds; Stock funds evaluation by Morningstar Inc.; Big bets that...

  • Morningstar Fund Analyst Pans.  // Morningstar FundInvestor;Apr2007, Vol. 15 Issue 8, p48 

    The article presents a list of mutual fund analyst pans compiled by Morningstar based on such factors as poor management, high costs, lousy performance and bad strategies. The list includes Eastern European Equity, Morgan Stanley Natural Resource Development B, and Saratoga Large Capitalization...

  • What's in your "domestic" fund? Murray, Dennis // Medical Economics;5/2/2008, Vol. 85 Issue 9, p18 

    The article reports on the domestic equity funds that hold around 10% of the total assets in non-U.S. stocks. According to Morningstar, a stock-and-fund tracker, it is not a bad thing since domestic funds with big helpings of foreign stocks have often outperformed domestic stock funds that hold...

  • Your guide to the managed funds data.  // Money (Australia Edition);Oct2008, Issue 106, p100 

    The article explains how retail share funds in Australia were ranked by size using managed funds data provided by Morningstar. There were more than 6,000 managed funds on offer when Morningstar launched its star rating system to help investors with a way to initially identify quality funds. The...

  • BEYOND U.S. SHORES. Korn, Donald Jay // Black Enterprise;Mar2007, Vol. 37 Issue 8, p42 

    The article reports that foreign mutual funds in the U.S. continue to outpace their domestic counterparts. For the last five years through the end of 2006, international stock funds have returned 16.28% a year, according to Chicago, Illinois-based fund tracker Morningstar. New York financial...

  • Morningstar Sees Record Fund Inflows in January.  // Plan Sponsor News;2013, p16 

    The article presents data from Morningstar, which showed that investors infused 86.5 billion dollars to long-term open-end mutual funds in the U.S. in January 2013. Among the top performing asset classes are intermediate-term bond, taxable-bond funds and international-stock funds. The opinion of...

  • FOREIGN POWERS. Korn, Donald Jay // Black Enterprise;Apr2006, Vol. 36 Issue 9, p92 

    The article presents an overview of the performance of mutual funds in the U.S. For many mutual fund investors, 2005 was a disappointing year. Domestic stock funds gained less than on average, according to Morningstar Inc., while bond funds returned a few percentage only. Both categories wound...

  • Henderson fund downgraded by Morningstar OBSR. Akhtar, Tanzeel // Fundweb;1/11/2013, p4 

    The article reports that ratings agency Morningstar Inc. has put the equity fund Henderson Horizon Pan European under review. The agency downgraded the fund after its co-manager Bill Stormant left the fund. It mentions that the fund previously had a silver rating, and is being run by solo fund...

  • Morningstar's New Star-Rating System: Advances and Innovations. Reichenstein, William // Journal of Financial Planning;Mar2004, Vol. 17 Issue 3, p40 

    This article illustrates the style bias in the old star-rating system, and introduces the new star-rating system from Morningstar. In July 2002, Morningstar unveiled its new star-rating system. Conceptually, it is easy to summarize the change in the system. The old system compared the...


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics