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Stern Advice: Watch for that mutual fund pop

claimui
edited February 2012 in Fund Discussions
http://www.reuters.com/article/2012/02/09/us-column-personalfinance-idUSTRE8181G320120209?feedType=RSS&feedName=PersonalFinance&rpc=43

"Next month, something very dramatic is going to happen to most stock mutual funds. In fact, it's already started to happen.

The dramatic event is this: Those funds will hit the three-year anniversary of the nadir of the market in March 2009. And that means their three-year-return numbers will start to look amazingly good."

I've already started to notice this while researching funds, because all of a sudden, every fund's 3-year trailing return looks amazing. In other words, useless. Instead I use the growth charts on Morningstar and a period starting around 2008.

Comments

  • WallStreetRanterWallStreetRanter
    @Claimui Yep exactly, in fact if a fund has a top 10%-20% 3-year record during this coming timeframe, in most categories you should be highly skeptical. However, this specific static "rollover" of timeframes can be useful when used with the 5 year timeframe (as the 5 year isn't far from the peak). I have a feeling my favorite managers will be more middle of the road on this 3-year and among the top still on the 5 year. Although, in analysis, I focus more on rolling averages anyway.

    But definitely something people need to be aware of.

    The Wall Street Ranter
  • VintageFreakVintageFreak
    edited February 2012
    There will always be funds suffering from this "syndrome". Sometimes quite a few, sometimes a-many. I have to laugh a little about using M* chart though. M* has made all its money licensing its "star rating" that essentially looks at performance for 3 and 5 years. Then it recommends its 2-star funds. What I want to see is some fund company touting their 2-star fund. Even after M* comes up with article they will not dare do that.

    That's why buy a fund if you are comfortable with manager and hold it. Or buy index fund and trade it. That's my position. Heck sometimes I have bought and sold funds in 1 month because I know end of quarter is coming and some funds are notorious in buying their best performing stocks in an effort bid them up to make their quarterly numbers look better.
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