Last month's Wall Street Journal reported "Winning Funds Share Traits, But the Trick Is Finding Them". The article looked for funds that had beaten the S&P 500 for each of the prior 8 years ( 1999 through 2006 inclusive) and found 30 such funds. It then sought common characteristics among these funds in the hope that such characteristics would help investors identify other funds that would perform similarly well in the future.
The article's methodology doesn't strike me as a credible guide for separating likely future winner funds from likely future loser funds. It seems to conclude from the fact that the winningest funds happen to share characteristic X that funds with characteristic X are likely to outperform funds that don't have characteristic X. But that's a logical fallacy. For example, the article observes that:
Many of the top funds have teams of managers instead of individuals, which allows for specialization by the stock pickers.The WSJ could have (but didn't) research and report whether team-managed funds as a whole tend to outperform funds with individual managers. We don't have enough data to answer that question conclusively, but according to our CRSP Mutual Fund database about 2/3 of all stock funds are team-managed. And in 2007, 58% of indivdual manager stock funds beat the S&P 500, but only 49% of team-managed stock funds beat the index.
The article also reports that funds with "low expenses" and a "buy-and-hold approach" make good investments. That has certainly been shown empirically here and elsewhere, but few of the funds on the WSJ's list reasonably meet those criteria -- only 7 of the 30 funds have expense ratios below 1% and turnover below 50%. (And even 50% turnover -- selling the average stock after only 2 years -- is a generous definition of "buy and hold")
But the best advice in the article is in the first paragraph:
Don't chase past returnsOf the 30 past winners, only 13 beat the index again in 2007
| Ticker | Fund Name |
Return
|
| CSSPX | Cohen & Steers Global Realty Fund, Inc; Class I Shares |
-18.58
|
| SCMVX | RBB Fund, Inc: Schneider Small Cap Value Fund |
-17.08
|
| UBVLX | Undiscovered Managers Funds: Undiscovered Managers Behavioral Value Fund; Institutional Class Shares |
-8.64
|
| DFSCX | DFA Investment Dimensions Group Inc: US Micro Cap Portfolio |
-5.22
|
| SMCDX | Wells Fargo Funds Trust: Wells Fargo Advantage Mid Cap Discipline Fund; Investor Class Shares |
-4.89
|
| DFSTX | DFA Investment Dimensions Group Inc: US Small Cap Portfolio |
-3.06
|
| RPFEX | Davis Series, Inc: Davis Opportunity Fund; Class B Shares |
-2.15
|
| CAMOX | Advisors' Inner Circle Fund: Cambiar Opportunity Fund; Investor Class Shares |
-1.86
|
| FSLBX | Fidelity Select Portfolios: Brokerage & Investment Management Portfolio |
-.15
|
| MPSCX | Morgan Stanley Institutional Fund Trust: US Small Cap Value Portfolio; Institutional Class Shares |
.13
|
| RGFAX | Royce Fund: Royce Heritage Fund; Service Class Shares |
1.20
|
| WMICX | Wasatch Funds, Inc: Wasatch Micro Cap Fund |
2.23
|
| RYLPX | Royce Fund: Royce Low-Priced Stock Fund; Service Class Shares |
2.32
|
| VMCVX | VALIC II Mid Cap Value |
2.80
|
| RSVAX | RS Investment Trust: RS Value Fund; Class A Shares |
3.76
|
| GGSAX | Goldman Sachs Trust: Goldman Sachs Growth Strategy Portfolio; Class A Shares |
4.58
|
| REBSX | Russell Investment Company: Equity II Fund; Class I Shares |
4.77
|
| S&P 500 Daily Reinvested Index |
5.49
|
|
| EXHAX | Manning & Napier Fund, Inc: Pro-Blend Maximum Term Series; Class A Shares |
6.00
|
| PHGAX | Target Asset Allocation Funds: Target Growth Allocation Fund; Class A Shares |
6.22
|
| PRSGX | T Rowe Price Spectrum Fund, Inc: Spectrum Growth Fund |
8.65
|
| ACTWX | Columbia Acorn Trust: Columbia Acorn Select Fund; Class Z Shares |
9.20
|
| ACDAX | AIM Equity Funds: AIM Capital Development Fund; Class A Shares |
10.69
|
| PGSGX | JPMorgan Trust II: JPMorgan Small Cap Growth Fund; Class A Shares |
12.34
|
| ANCFX | Fundamental Investors, Inc; Class A Shares |
13.55
|
| HIACX | Hartfd:Cap App HLS;IA |
17.40
|
| PRNEX | T Rowe Price New Era Fund, Inc |
40.69
|
| IGNAX | Ivy Funds: Ivy Global Natural Resources Fund; Class A Shares |
43.59
|
| FAGNX | Fidelity Advisor Series VII: Fidelity Advisor Energy Fund; Class T Shares |
44.84
|
| PRGNX | Jennison Natural Resources Fund, Inc; Class B Shares |
45.03
|
| FNARX | Fidelity Select Portfolios: Natural Resources Portfolio |
50.08
|