Before you go mutual fund shopping based on those beguiling newsstand headlines serving up the usual pap about the 10 best mutual funds to absolutely buy right now, here's a word of caution: Standard & Poor's says there's a good chance today's star fund managers will disappoint you down the road.

The investment services firm looked at the annual returns of domestic stock mutual funds from 2001 through 2006, ranking them based on their performance against one another, not against the S&P 500 or some other benchmark. Index and sector funds were excluded.

S&P found that only 2.2 percent of the funds were able to finish in the top 25 percent of their peers in each of the five years. Only 3 percent of the large-cap funds S&P analyzed finished in the top 25 percent in each of the five years, vs. 2.5 percent of the mid-cap funds and no small-cap funds.

Lowering the target to finishing in the top half didn't produce that many more persistent winners. Only 13.1 percent of the funds in all categories could lay claim to being in the top 50th percentile in each of the five years, S&P says.

S&P ran the same analysis for five-year returns and found the odds were considerably better: 29.1 percent of the funds that finished in the first quartile based on their returns for the five years ended Dec. 31, 2001, maintained their top quartile ranking for the five years ending Dec. 31, 2006.

About 48 percent of the funds in the top half for the first five-year period stayed in the top half over the next five years.

"Standard & Poor's research suggests that screening for top-quartile funds as the sole basis for an investment decision is inappropriate," says S&P's Srikant Dash, who co-authored the study.

The S&P analyst says the study reveals that most of the time, the top 25 percent best-performing funds will come from funds that finished in the second or third quartile in prior years.

Given the persistent insistence of some investors to flit from one "hot" fund to another, you'd think S&P was the first to suggest it doesn't pay to chase performance. It's not. Careful students of the market have been saying this for 40 years, but it bears repeating.

"Persistence seems to be short-lived and is often tied to a momentum effect," says Paul Brahim, managing director of BPU Investment Group, Downtown.

S&P says the few consistent winners had a couple of things in common.

"Top funds tend to have more experienced management and lower expenses relative to their peers. They also focus on minimizing losses during down markets," says S&P mutual fund strategist Rosanne Pane.

Funds that finished in the top 50 percent among their peers over five consecutive years had managers who had been on the job for an average of 8.6 years vs. 5.8 years for all funds. They had an average expense ratio of 1.1 percent vs. 1.26 percent for all funds. Finally, they held an average of 201 stocks in their portfolio vs. 136 for all funds, meaning they didn't try to guess which sectors of the market would be hot and place heavier bets in those areas. Instead, they stuck to their knitting.

"The managers with the greatest degree of performance persistence seem to have the greatest degree of style purity," Mr. Brahim says. "They are disciplined to their objective and their style. They broadly diversify."

Eventually, even the best manager has a down year. Bill Miller, manager of the Legg Mason Value Trust [Ticker: LMVRX], had a 15-year streak of beating the S&P 500 until 2006. In his case, as well as for other managers with a sharp focus, one bad year isn't necessarily reason for investors to drop a fund.

"We try to understand why it had a bad year," says Donald Belt, chief investment officer of Hefren-Tillotson, Downtown. "If the reasons you invested in the fund are still intact, theoretically, you should be even more excited."

David Root Jr., chief executive officer of D.B. Root & Co., Downtown, says it's important to consider the role a fund plays in your portfolio when assessing its performance, citing Federated Investors' Market Opportunity Fund [FMAAX] as an example. Manager Steven J. Lehman aims for preservation of capital and positive returns regardless of what the market is doing. His bearish outlook last year limited the fund's return to 3.5 percent vs. 15.8 percent for S&P 500 and 22.5 percent for comparable mid-cap value funds. However, since the Federated fund was launched in December 2000, it has produced winning results annually while handily beating both benchmarks.

"That outweighs or trumps the fact that he might have had a bad year," Mr. Root says. "We don't expect him to keep pace with the top-performing mid-cap fund. His role is defensive."

All of the funds S&P looked at are actively managed. Because they rely on managers who try to outsmart the market by doing thorough research, even those with low management fees are more expensive than index funds that just try to match the performance of the S&P 500 or other market indexes. The burden of expenses can be a substantial hurdle to overcome, which is why some advisers prefer relying on index funds.

"The average investor should not be trying to time the market. They should build a core in their portfolio using indexes," says P.J. DiNuzzo of DiNuzzo Investment Advisors in Beaver.