Articles for Financial Advisors

Chasing Mutual Fund Returns

Chasing Mutual Fund Returns

According to Mark Hulbert, editor of the Hulbert Financial Digest, one of the best methods for picking mutual funds ignores long-term results and focuses only on returns over the previous 12 months, with an emphasis on one-, three-, and six-month trailing returns. In a April 2013 WSJ article, Hulbert Financial Digest stated that of the dozens of stock fund advisory services it tracks, this short-term strategy (used by No Load FundX) had the highest returns. Over the past two decades, No Load FundX, edited by Janet Brown, averaged 11.0% a year vs. 8.6% for the overall market.


A study by FundX Investment Group, a mutual fund company affiliated with Ms. Brown’s service, looked at returns of various hypothetical portfolios that “differed only in how many months or years of past performance were used to determine which of these funds to own at any given time.”


According to the group’s study, the best portfolio picked mutual funds according to their average returns over the most recent one-, three- six- and 12-month period (the average of these 4 returns). From 1-1-1999 through 3/31/2013, the strategy resulted in net 12% annualized returns vs. 3.5% for the S&P 500. An alternative approach used by the FundX group was a portfolio comprised of funds with the best performances over the past 12 months; this approach resulted in annualized gains of 10.5%.


Strategy Negatives

The No Load FundX strategy has its negative points: [1] returns were quite bad during the mid-2008 market meltdown—just like other funds; [2] since there may be frequent fund trading, taxes for non-sheltered accounts can be a major concern; and [3] analysis by Sheldon Jacobs (editor of a mutual fund advisory service for 25 years, through 2003) found that his short-term trading strategy worked best when applied to only no-load funds that focused on more than one sector and did not use leverage. 

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