Past Performance

by Fern on October 7, 2004

Okay, you’ve heard it before- past performance is no guarantee of future results. But check out these stats from Segal Advisors Inc., a New York based consulting firm. They analyzed returns of 129 large-cap growth managers during the three-year period at yearend 1999 and 2003, and found that 48% of those in the top quartile for the first period finished with negative returns of 12% to 16% for the 2001-03 period. Only 9 % of the bottom-quartile managers in the 1997-99 period had similarly negative returns for 2001-2003.
In 1999, the aggressive growth managers were hot performers until the downside came. Those managers in the third or fourth performance quartile at the end of 1999 were the more conservative ones, who are even outperforming today.
Take that, Morningstar and your four stars, too. You need a lot more data that the old news that you get from the newspaper, for sure. But there’s a lot more to the decision of what mutual fund to buy than pure research. It has a lot to do with what your goals are, the return you need, how much risk you are willing to take, how does it interact with your other holdings and what sectors does it invest in which may overlap with what you currently own.
Answer those questions in addition to your research and you will find the right mutual fund.

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