Superior mutual fund and ETF performance charts are the sales tools of modern financial snake oil salesmen
Historical performance charts allow investment fund promoters to market selectively their supposedly superior funds and to allege that their excessively high fees are worth it. Lured in by superior past performance, most often individual investors will get mediocre future performance before costs and even worse performance after costs. Unreasonably high investment expenses, industry sales and marketing fees, and excessive yet hidden, performance killing portfolio trading costs are the real economic factors that investors should pay attention to — not the snake oil of historical performance charts. See this article: How to lie with statistics: Investment performance charts.
The Fund Authority Score system zeros in on your expected costs, because lower investment fund expenses and lower portfolio transactions costs repeatedly have been proven to increase mutual fund returns over the long term. Fund Authority Scores focus on the very heavy long term burden of unreasonably high investment expenses, excessive industry sales and marketing fees, and performance killing portfolio transactions costs. (See this article: Pay less to get more)
Fund Authority Scores are a better ETF and mutual fund performance rating system
Fund Authority Scores intentionally do not emphasize past performance measures, because market volatility, randomness, and plain old dumb luck in portfolio securities selection greatly influence historical fund performance. Study after study has shown that most mutual funds tend to demonstrate a “reversion toward the average” over longer periods of time. Investment funds simply tend to have lucky and unlucky streaks that are not sustained.
Furthermore, there seems to be no reliable way to tell which fund might sustain a superior past performance record. Superior past performance simply is not a reliable indicator of better future performance. In contrast, lower management, marketing, and trading costs are a far better indicator of which funds will tend to do better in the future. This is what counts to every individual investor — what ends up in your portfolio when you need it later.
The level of competence is very high across most mutual funds and ETFs and global real-time auction securities markets have a leveling effect. Modern securities markets make almost everyone average in the long term, before costs are considered, and costs remain as that most influential long term differentiating factor. After visible and hidden costs are taken into consideration, funds with lower costs and [...]