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Past Performance

As Standard and Poors concluded in their January, 2010 report (Do Past Mutual Fund Winners Repeat?) very few mutual funds are able to consistently repeat top-tier performance. In fact, if you are going to use a mutual fund's past performance in your investment analysis, then it might be more useful if you are trying to avoid the poorly performing funds, rather than attempting to pick next year's winners.

"The phrase “past performance is not an indicator of future outcomes” (or some variation thereof) can be found in the fine print of almost all mutual fund literature. Yet due to either force of habit or conviction, investors and advisors alike consider past performance and related metrics to be important factors in fund selection. So does past performance really matter?

To answer this question on a continuous basis, the S&P Persistence Scorecard, released twice per year, tracks the consistency of top performers over yearly consecutive periods and measures performance persistence through transition matrices." To read more, click on the most recent report, S&P Persistence Scorecard - November 2011.

Mutual Fund Ratings

With over 27,000 mutual funds to chose from Canadians face a daunting task - choosing the best ones for their hard earned savings. Where do you begin your search?

A good place (but not perfect) to start - a mutual fund ratings service. Mutual fund rating services like Morningstar, The Globe and Mail's Fund Ratings and  MPL Communications' - Canadian Mutual Fund Advisor  provide a good starting point for investors. They use set criteria to review each mutual fund's investment approach and it's historical performance when determining the mutual fund's rating, within each mutual fund's peer group.

This article (Mutual Fund Ratings: Crucial or Insignificant?), by Investopedia, provides a good summary of the benefits investors derive from using a mutual fund rating service.

Remember: Just as a mutual fund's past performance is not a good predictor of future performance, neither is a mutual fund's individual rating. Just like past performance, a mutual fund's individual rating is more useful in helping to avoid under-performing mutual funds, than it is in helping to pick a winning mutual funds

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