Which factor is the best predictor of future mutual fund performance?

The best predictor of future mutual fund performance is the expense ratio. The expense ratio represents the total costs associated with managing a fund, expressed as a percentage of the fund’s assets. A lower expense ratio indicates that more of the fund's returns will go to investors, as less is taken out for fees and expenses. Over time, even small differences in expense ratios can have a significant impact on overall returns, especially considering the effects of compounding.

In contrast to expense ratios, average return, fund manager's experience, and market conditions can be less reliable indicators of future performance. Average return can sometimes be skewed by one or two exceptionally good years and does not guarantee that future returns will mirror past performance. While a fund manager's experience can be beneficial, it does not ensure future success, as market dynamics can change drastically. Market conditions can influence performance but are unpredictable and can vary widely, making them a less stable predictor of consistent returns.

Overall, the expense ratio is a crucial factor because it directly affects the fund's net performance and is a controllable element managed by the fund company, making it a more reliable indicator for investors to consider when assessing potential mutual fund performance.