According to the U.S. Securities and Exchange Commission (SEC), a mutual fund is a professionally managed collection of investments for a group of investors in stocks, bonds, and other securities. The fund manager manages the investment portfolio and tracks the wins and losses. Eventually the dividends are passed along to the individual investors in the mutual fund. The first group fund was founded in 1924, but the spread of these types of funds was slowed by the stock market crash in 1929. Congress passed the Securities Act in 1933 and the Securities Exchange Act in 1934 to require that investors be provided disclosures about the fund, the securities, and the fund manager. The SEC drafted the Investment Company Act, which provided guidelines for registering all funds with the SEC. By the end of the 1960s, funds reported $48 billion in assets and, by October 2007 there were over 8000 mutual funds with combined assets under management of over $12 trillion.

Investors often choose mutual funds on the basis of past performance, and many brokers, mutual fund companies, and other websites offer such data. In the file Mutual fund returns 2017, you’ll find the 1-month, 3-month, year-to-date (8-month), 1-year, 3-year, and 5-year returns of 98 Morningstar funds of various types. Which variable from the past (1-, 3-, or 5-year returns) provides the best predictions of the recent 3 months? Examine the scatterplots and regression models for predicting 3 month returns and write a short report containing your conclusions.