Finding the best no load mutual funds is no easy task because today’s top funds often become tomorrow’s worst performing funds and vice versa.  As the saying goes, “the faster they go up, the faster they come down.”  The temptation for the average person to invest in this year’s best performing funds is almost overwhelming.  Unfortunately, investors all too often focus solely on historical performance without considering how the fund achieved the superior results or whether the results are sustainable.

Mutual Fund Research

The better way to perform mutual fund research is to focus on factors that will stand the test of time such as fund expenses as well as the experience of the fund manager and the depth of his or her research team.  Expense ratios, which are generally comprised of an investment management fee, a 12b-1 fee and other operating costs, do not typically deteriorate over time.  Further, expenses vary considerably and can sometimes help explain the performance differential between the best no load mutual funds and the worst no load mutual funds over time.  This is especially true for fixed-income funds, where sometimes only one or two percent separates the best from the worst funds.

Portfolio Manager and Analyst Qualifications

Even more important to selecting funds that will be the best performers for years to come is the background and experience of the manager and his or her investment team.  As the publisher of a mutual fund report, one of the most time consuming aspects of my research is evaluating a fund’s manager and investment team.  Portfolio managers should have experience in a variety of different market environments.  The more experience, the better, provided that the portfolio manager is not close to retirement.  In addition, the manager and his or her team should have high quality educational backgrounds and/or well-regarded designations.  It has been my experience that managers with better credentials are more successful than managers with lesser credentials.  Further, managers with high quality backgrounds seem to have better mutual fund research staffs than lesser-qualified managers.

Investment Approach

You should also probably consider a fund’s investment style and whether it changes over time.  The better funds employ very consistent investment approaches that rarely deviate from their stated policies.  At the very least, if you are invested with a fund with a consistent approach, you will know what to expect in both good and bad markets. 

Avoid the Media Darlings and Do Your Research

Investors should try to avoid the high-flying, top performing funds that often get quite a bit of media attention, but inevitably can never live up to expectations.  Instead, investors should go the extra mile and delve into the world of mutual fund research.  Mutual fund investing can prove to be a very lucrative endeavor, but usually only when you do the necessary legwork.