Why is chasing last year’s best-performing mutual fund usually a bad idea?
Published 19 September 2026
It feels logical to move money towards funds or sectors that have recently performed well. Why can that hurt long-term returns?
One common behavioural mistake is chasing rear-view returns.
A fund, sector or theme performs very well, becomes popular, and suddenly everybody starts talking about it.
By the time many investors enter, a large part of the strong run may already have happened.
They may also be leaving another strategy precisely when that strategy is going through its period of underperformance.
Moving towards whatever has just performed best can mean repeatedly buying after strong returns and leaving after weak returns.
“We look at the fund that performed extremely well last year.”
“By the time we decide to invest, it may already be late.”
This is not personalized investment advice. Your goals, risk tolerance and financial situation may be different, so assess your own situation and discuss it with your financial advisor.
A fund, sector or theme performs very well, becomes popular, and suddenly everybody starts talking about it.
By the time many investors enter, a large part of the strong run may already have happened.
They may also be leaving another strategy precisely when that strategy is going through its period of underperformance.
Moving towards whatever has just performed best can mean repeatedly buying after strong returns and leaving after weak returns.
“We look at the fund that performed extremely well last year.”
“By the time we decide to invest, it may already be late.”
This is not personalized investment advice. Your goals, risk tolerance and financial situation may be different, so assess your own situation and discuss it with your financial advisor.