Last week, I laid out the main criteria that savvy investors should use when judging the quality of a mutual fund's management team. This week, as promised, we turn our attention to how to gauge a fund's performance track record, but in a development that should surprise absolutely no one, the quality and longevity of the fund's management play a crucial role in making that assessment, too.

Read on for all the juicy details, which as with last week's rundown -- and consistent with the rules of Jeopardy -- I'll put in the form of questions.

Thanks, Alex.

1. Who "owns" the fund's track record?
Despite the admonition that past performance is no guarantee of future returns, even the best fund companies lean heavily on historical performance when marketing their funds. In some ways, of course, it's tough to blame them. Annualized double-digit returns over a 10-year time frame look great in a glossy print brochure, as does a constellation of five-star track records or best-in-class Lipper Leader scores.

Still, blame them you should. Rarely if ever, after all, do those same advertisements tell you just who was responsible for that track record, and in my book, that's a huge sin of omission. Why so? Well, particularly from the perspective of a prospective investor, a fund is only as strong as its current management team.

With that all-important point in mind, your first performance-test mission -- one you really must choose to accept -- is to find out if the current squad "owns" the fund's star-studded track record. To be sure, even if it doesn't, there may still be compelling reasons to invest. The fund's historical performance, however, ain't gonna be one of them -- despite what those slick ads might lead you to believe.

2. In what kinds of markets has the fund fared best -- and worst?
Once you've determined how the fund has fared with its current management team at the helm, your next line of questioning should concern its performance peaks and valleys.

Make no mistake: It's unrealistic to expect an aggressive-growth fund that packs large sums into such picks as Intel (NASDAQ:INTC), Yahoo! (NASDAQ:YHOO), Amgen (NASDAQ:AMGN), and Qualcomm (NASDAQ:QCOM) to rise to the top of a market that's being paced by small-cap value stocks. But if that same fund fared poorly in, say, growth-crazed 1999, that's a worrisome sign, one that you should certainly investigate before sinking any money into it.

Moreover, even if the fund's absolute returns look fine, you should still gauge its performance relative to an appropriate benchmark. If a large-cap value fund -- you know, one that invests in lower-P/E names such as Fannie Mae (NYSE:FNM), Dow Chemical (NYSE:DOW), and SBC Communications (NYSE:SBC) -- looks like a dud relative to an index such as the Russell 1000 Value, that may very well indicate that its manager just happened to find himself in the right place at the right time and didn't add much in the way of stock selection.

When you get right down to it, stock-picking prowess is what you're paying for when you surrender a percentage of your assets each year to the fund's expense ratio, a point that leads to this question: What's a savvy investor to do upon finding that the fund's manager hasn't beaten her bogey over time?

That one's easy: Look for a manager who has, while bearing in mind that index funds or ETFs are always viable -- and no doubt cheaper -- options.

3. Is capital preservation on the management team's agenda?
Sometimes, it's perfectly acceptable for a fund to underperform the market. Given the higher returns of equities relative to bonds over the long haul, for example, you wouldn't expect a hybrid fund (i.e., one that invests in both stocks and bonds) to beat an equity index such as the S&P 500 over the course of many years. You would and should, however, expect that same fund to do a better job of preserving your investment when the stock market hits the skids.

Still, even in the realm of pure equity funds, the capital preservation question is always critical, particularly if the fund's year-to-year performance has swung from the highest highs to the lowest lows. By and large, mutual funds are ideal investment vehicles for those folks who want to build wealth slowly over time. And if you're invested in a volatile hot rod at just the moment when you should be tooling around in a Winnebago, well -- just to stretch the metaphor a bit -- you may find yourself stalled on the road to retirement.

For that reason, as I do the research for my Champion Funds newsletter service, I always take note of how often a fund has lost money during each of the calendar years it's been in existence. Sure, a calendar year is an arbitrary length of time, and for dollar-cost averagers (i.e., those who sock away a little bit at a time month after month), a fund's year-over-year performance isn't especially meaningful. That strategy, after all, allows you to buy on the dips.

Nonetheless, when you're looking for a way to gauge the consistency of a fund's performance -- not to mention how successful a management team has been at staving off loss and keeping volatility in check -- calendar-year returns make a darn good yardstick.

Now what?
As with last week's write-up, this isn't an exhaustive list of things to consider when judging a fund's performance history. We haven't talked about volatility measures such as standard deviation, for example, or for that matter about "modern portfolio theory" stats such as alpha, beta, and R-Squared.

Those we'll save for another discussion, but in the meantime, rest assured: If you go shopping for mutual funds armed with these questions, you'll go a long way toward making a meaningful assessment of a fund's historical performance.

Happy hunting!

Each month in Champion Funds, chief analyst Shannon Zimmerman hunts for that rarest of mutual fund species: S&P-besting picks that don't charge you an arm and a leg. Afree sampleis just a click away. Shannon doesn't own any of the securities mentioned, and he'd like you to know that The Motley Fool isinvestors writing for investors.