One measure of a good fund is how well it performs relative to its peer group over several periods of time. Funds with a history of besting their competitors can have better managers, a replicable strategy for realizing higher returns, lower expense ratios or a combination of these.

Identifying such funds starts with analyzing their historical returns. A core requirement for this month’s First Cut of mutual funds is for a fund to rank in the top 40% of category returns for the past three-, five- and 10-year periods. This requirement helps to eliminate those funds with one or two good years but disappointing returns for all other years measured.

To further eliminate “flash-in-the-pan” funds whose annualized returns are boosted by temporarily high returns, a risk index below the category average is required. Lower category risk index scores identify funds whose returns have fluctuated less than their category peers.

Expenses also play a role in returns. Because expense ratios reduce the size of net assets, they increase the absolute return a fund must realize to merely match the performance of its peers. Since high expense ratios are an additional hurdle to outperformance, passing funds are required to have a below-average expense ratio. Funds charging a front or rear load are also excluded for the same rationale.

A few additional requirements are included to ensure the funds are widely accessible by individual investors. All funds have a minimum initial purchase requirement no higher than $10,000. Institutional funds and special share classes are excluded.

The 25 mutual funds with the most consistent category performance are shown below. They are ranked by three-year return in descending order.

Screen Criteria

3-Year (NAV) Category Rank: 60% - 100%
5-Year (NAV) Category Rank: 60% - 100%
10-Year (NAV) Category Rank: 60% - 100%
Load Funds: No-load
Expense Ratio Category Rank: 0% - 40%
Leveraged: No
Inverse: No
Minimum Initial Purchase: <= $10,000
Availability: No Institutional Funds
Exclude Share Class Type(s): Adv, Other, Retirement, S
Category Risk: 0% – 40%

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