Commentary

For Popular Returns, Try Unpopular Categories

Peter Di Teresa

We in Chicago love losers--just look at our sports teams. Sure, we had the Michael Jordan-era Bulls, but have you seen them lately? We start every sports season with fresh hopes, only to have them crushed again.

In the fund world, though, it pays to rally behind losers. Here's how it works: At the end of every year, we find the three least popular fund categories of the year based on percentage change in cash flows. We then recommend that you buy one fund from each unpopular category and stick with them for three years. Morningstar has backtested the strategy to 1987, with winning results. Unpopular categories beat the average equity fund over the next three years more than three fourths of the time.