WEEKEND INVESTOR --- Wealth Manager -- Hulbert on Investing: Chasing Hot Mutual-Fund Returns
It's an article of faith among many investors that they should only buy mutual funds sporting the best long-term performance. Yet one of the best methods for picking mutual funds ignores the longer term altogether.</br></br>Among the dozens of stock mutual-fund advisory services tracked by the Hulbert Financial Digest over the past two decades, the best performer is one that focuses only on returns over the previous 12 months -- and it places special emphasis on returns over the trailing one, three and six months.</br></br>This service -- entitled No Load FundX and edited by Janet Brown -- has produced an 11% annualized return over those two decades, versus 8.6% for the overall stock market.</br></br>The somewhat surprising investment implication: It pays to avoid mutual funds whose recent performance has begun to slip, no matter how good their performance might have been in previous years. Similarly, it pays to favor funds with stellar recent returns, even if their longer-term performance is dismal.</br></br>Consider a study of more than 300 funds that focus on the broad stock market as opposed to individual sectors, conducted by FundX Investment Group, a mutual-fund company affiliated with Ms. Brown's service. (The funds were picked because they have existed for at least a couple of decades, but Ms. Brown says the strategy could also work with exchange-traded funds.)