The Best Performing Mutual Funds – Tips on Finding the Best ETFs and Mutual Funds

Posted by admin as shares and stocks

The stock picking process is one that many investors would rather not deal with. These investors are often drawn to mutual funds or exchange traded funds as a way to easily diversify their investment holdings while participating in the stock market. Not answered yet is the question as to which mutual funds are those you should be buying.

Many advisors believe strongly in the Efficient Market, and contend that the best approach is to buy low cost index funds. The assumption is that the only way to reduce market risk is by diversifying into different sectors or countries. The system is to allocate a fixed part of the total to each asset and keep it fixed by rebalancing periodically. But, if we look past the research papers and examine the real world results, we find that some advisors do beat the market averages over long periods of time. When looking at the Hulbert advisory tracking service, one thing that jumps out is the fact that the top mutual fund advisories tend to be trend following systems.

Trend following is simply a system of identifying which of the family of funds your are following is the best mutual funds by measuring relative strength or percentage change over the last few weeks or months. Most of these systems use periods of 1 to 3 months, and the performance degrades with longer holding periods, so using the year end ranking of the best funds for the year will not give the same performance. Buy the top fund, keep it for up to 3 months, and then sell and buy the new top fund.

With such a short holding period, it’s necessary to find a mutual fund family that will allow relatively frequent trading. Fidelity has a large number of fund offerings and the best Fidelity funds to use for this system are the Fidelity Select Funds. The Select funds can be held for just a month before selling, and there are 41 different funds to choose from. Substituting ETF’s or exchange traded funds for mutual funds eliminates many problems with trading restrictions on fund families.

By using a sector rotation system of holding the top funds for a relatively short period of time, you can increase your return over that of the market and reduce the downside volatility of the portfolio, which is really the goal of any investment strategy.