We have always cautioned about the perils of relying on "best fund managers." One of the most popular of these lists is issued annually by Morningstar, which annually designates a "Fund Manager of the Year" in various categories.

Lipper, another well-known mutual fund researcher, also bestow awards on funds "that have excelled in delivering consistently strong risk-adjusted performance, relative to peers."

And really investors shouldn’t rely on these awards as a basis for selecting mutual funds in their portfolios. Here’s why.

In the US  Index Fund Advisors studied the performance of sixteen domestic equity funds that received the "fund manager of the year" designation by Morningstar. It looked at data from the inception date of the fund manager (or, in two cases, from the inception date of Morningstar's benchmark) through 2011.

Here's a summary of the findings: go to the Members Blog for more

Past performance is no predictor

Will Danoff, who managed the Fidelity Contrafund, was Domestic Equity Manager of the Year in 2007. In that year, he beat his benchmark by almost eight percent. In 2009, he underperformed his benchmark by almost the same percentage.

Mason Hawkins, who managed Longleaf Partners, won the award in 2006, when he beat his benchmark by 6.17 percent. He underperformed his benchmark by 6.22 percent in 2007 and by 13 percent in 2008.

Every one of the fund managers of the year had subsequent years of some underperformance. Perhaps the worst example is Jim Callinan, the manager of the RS Small Cap Growth fund, who was the 1999 Domestic Equity Manager of the Year. No wonder. His fund beat its benchmark by an unbelievable 140 percent! Then Jim fell off the wagon. In six of the seven ensuing years, he underperformed his benchmark. In the only year he beat it (2004), it was by a measly 0.85 percent.

The Lack of Evidence of Skill

Of the sixteen funds studied, only one fund manager evidenced skill based on a statistical test (the t-test) which determines if the fund's outperformance was really attributable to skill (with a 95 percent or higher probability) or if it could be explained by luck. Even if you can find a fund manager who passes the test for a finite period of time, it is not a slam dunk that his skill will persist in the future.