One of the worst mistakes beginning investors often make is to try and choose top performing mutual funds based solely on past performance. While past performance can be a useful indicator of how a fund invests and what it invests in (high risk and return vs low risk and return), it is all too often the case that the best performer in past years falls to become one of the worst performers in future years. This extra lag from performance chasing, combined with the significantly higher cost and complex share classes of mutual funds are why I prefer ETFs to mutual funds. That said, I do occasionally find it useful to take a look at some of the very few top performing mutual funds in each of several categories that have managed to outperform over 10+ years to see if there are any factors that might be worth noting. Anything less than 10 years, as I would agree with Jack Bogle, is noise in stock markets. As seen below, the drivers of the long-term outperformance can often be credited to simple factors like value or momentum that can be replicated far more cheaply with factor ETFs.
So here are some selections of top performing mutual funds from the US equity, international equity, bond, and alternative categories. This time, I included links to Morningstar instead of Yahoo, as I did with the lists of the oldest mutual funds.
Top performing US equity mutual funds
The top performing mutual funds investing in US stocks mostly had one factor in common: large cap growth, especially with an overweight in technology. One clue of how hard it is for actively managed US stock mutual funds to beat their benchmarks is that out of thousands of funds, 3 of the top 8 10-year performers listed below are Nasdaq 100 index funds.
Top performing international equity mutual funds
Another factor seen between 2008 and 2018 is that US stocks performed better than non-US stocks, so the best performing “international” funds were ones that tended to overweight the US, as well as overweighting large growth over the same period.
Top performing bond mutual funds
In the bond category, 4 of the 5 top performers are high yield bond funds, which is not surprising given the low prices / high spreads junk bonds had at the depths of the financial crisis 10 years ago.
|Salient Select Income Fund||KIFYX|
|Fidelity Capital and Income Fund||FAGIX|
|Federated High Yield Trust||FHTIX|
|Guggenheim High Yield Fund||SHYIX|
|Eaton Vance High Income Opportunities Fund||EIHIX|
Top performing “alternative” mutual funds
Last but not least, I wanted links to some top performing mutual funds in the “alternatives” category, many of which could make the cut simply by having 10+ year track records. The most common strategy in this category was long/short equity, probably due to the relative ease of getting a compliant retail mutual fund in this category compared with other alternative strategies.
|AMG FQ Long-Short Equity Fund||MEQFX|
|Weitz Partners III Opportunity Fund||WPOPX|
|Guggenheim Alpha Opportunity Fund||SAOIX|
|BlackRock Event Driven Equity Fund||BILPX|
|Dunham Appreciation and Income Fund||DNAIX|
|DWS Global Macro Fund||MGINX|