Morningstar's Unpopularity Contest

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Morningstar's Unpopularity Contest

Fund investors generally have lousy timing, meaning that most investors buy high and sell low, instead of the other way around. That’s why, if you’re an opportunist, you have the potential to profit by buying what everyone else is selling.

For its annual Unloved Fund study, Morningstar analysts find the three most unpopular fund categories at the end of each year, based on percentage change in cash flows, or how much money is going into and out of mutual funds. It then recommends that you consider buying one fund from each unpopular category and stick with them for three years. The study also highlights the most popular equity categories—those that have seen substantial new inflows—and suggests that investors may want to trim back on those areas. Morningstar has featured this strategy since 1994 and found it can produce positive results compared to the "loved," or popular fund categories and the MSCI World Index and the S&P 500 over the same time period.