Past returns explain what happened, not what must happen next
Performance history can be helpful because it shows how a fund behaved in real market conditions. But it cannot tell you exactly what will happen in the future.
A fund may have performed well because its investment style was in favour, its market did well, or a few holdings delivered unusually strong results. Those conditions may not repeat.
Chasing the fund at the top of a table can be risky. By the time a fund looks outstanding, some of the best period may already be behind it.
Past performance should be read with risk, charges, asset allocation and fund objective. It is one part of the decision, not the decision itself.
Use performance carefully
- Compare several time periods.
- Ask what drove the return.
- Check whether the fund took extra risk.
- Compare with similar funds only.
- Avoid choosing based on one strong year.