Daniel Lee
- Sep 25, 2023
- 2 min read

How To Use Past Performance To Uncover Good Funds To Invest In

Let’s talk about how you can use past performances to assess whether a fund is worth investing in.

While past performance does not dictate future performances, we must not neglect them as they provide valuable insights on whether a fund is worth investing in.

That said, more often than not, investors rely on past performances wrongly which led to poor decisions only to find out 5 to 10 years later that the fund’s future performance is nothing like its past.

An example of a fund like that is ARKK Invest:

When the fund performed spectacularly well during the lockdown in 2020, a lot of investors saw the performance of the fund and invested vast amounts of their fortune in hopes that the past performance can be carried on in the future only to be disappointed as the economic situation changes.

When we are looking at the past performances of a fund, what is important is to examine the behaviour and in particular, the consistency of the performance of the fund relative to its benchmark.

An example of what we should be looking out for is as follows:

What we are looking out for in a fund is the presence of minor outperformance that accumulates and compounds over time without deviating too much from the overall behaviour of the sectorial average or indexed benchmark.

Having such consistent outperformance over the benchmark is the reason why a passively or actively managed fund might be worth investing in instead of blindly investing in the index.

That said, such funds are hard to come by and it requires us to do our homework when examining the behaviour of the historical returns to avoid investing in fund managers that are considered “One-hit wonders” like that of ARKK invest.

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