Perennial Mutual Funds: Staying With Winners by Palmer Wright, Ph.D. In past issues of STOCKS & COMMODITIES, Fay Dworkin and Gary Zin have advocated selecting stock mutual funds on the basis of relative performance over periods of one to nine months. Zin rejected the additional use of five- r year performance because requiring funds to exceed a market index over the longer period did not improve his shorter-term momentum approach. Focusing on any five-year performance list is of limited value, whether the ranking is end-of-year or current. Such "winners" usually fall off the list within a few months. Needed are sustainable, or "perennial," long-term winners, funds that continue top five-year performance in the worst climate as well as the best. How to find such funds? My detection method isolates no-load mutual funds with cyclical endurance. The five-year returns of the top equity funds move in cycles between maximum and minimum values. This is the primary basis for selecting the funds that stay on the top 30 list. By definition, perennial funds are those remaining on top through both extremes—the highest and lowest returns on investment. They have sustained a superior performance in both the best and worst five-year periods, usually about a year apart, though since 1976 the half cycles have been as short as six months and as long as 27. |
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