TITLE

Does Consistency Predict Fund Performance?

PUB. DATE
December 2004
SOURCE
Journal of Financial Planning;Dec2004, Vol. 17 Issue 12, p20
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
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.
ACCESSION #
15309203

 

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