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Persistence of Australian Active Funds

Do top-performing Australian active funds tend to keep outperforming over time?

EXECUTIVE SUMMARY

  • While comparing active funds against a benchmark index is a typical practice used to evaluate their performance, persistence is an additional test that reveals fund managers’ skills in different market environments. 
  • In this report, we measure the performance persistence of active funds that outperformed their peers and benchmarks over consecutive three- and five-year periods, and we analyze their transition matrices over subsequent periods. 
  • A minority of Australian high-performing funds persisted in outperforming their respective benchmarks or consistently stayed in their respective top quartiles for three consecutive years, and even fewer maintained these traits consistently for the five-year period. 
  • Out of the top-performing funds in the 12-month period ending June 2015, only 2.1% persistently maintained a top-quartile rank, and 1.7% consistently beat their benchmarks in the following four consecutive years. 
  • Over two successive three- and five-year periods, the majority of outperforming funds failed to persistently beat their respective benchmarks, and most funds in the top quartile did not stay there consistently. 
  • Out of the 164 Australian funds that ranked in their respective top quartile in the five-year period ending June 2014, fewer than half of them remained in the top two quartiles, and 13.4% were liquidated or merged in the subsequent five-year period. 
  • Out of the 269 Australian funds that outperformed their respective benchmark in the five-year period ending June 2014, only 21.2% continued to outperform their respective benchmark in the following five-year period, and 15.6% of them were liquidated. 

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