SUMMARY

When an active manager beats a benchmark, how can we judge whether the result is a product of genuine skill or merely of good luck? Genuine skill is likely to persist, while luck is random and soon dissipates. Therefore one key measure of active management skill is the consistency of a fund’s outperformance.

The Persistence Scorecard attempts to distinguish luck from skill by measuring the consistency of active managers’ success. This report shows that, regardless of asset class or style focus, few fund managers have consistently outperformed their peers.

For example, only 3.84% of domestic equity funds in the top half of the distribution in 2015 maintained that status annually through 2019, significantly below what random chance would predict. Similarly, just 0.18% of the 2015’s top-quartile domestic equity funds maintained that performance over the next four years, again below random chance.

Lengthening the horizon to consider performance over two consecutive five-year periods, Exhibit 1 shows that the top-quartile domestic equity funds of 2010-2014 had little luck maintaining their top-quartile status for the 2015-2019 period. In fact, the most likely outcome for a top-quartile fund was liquidation or style change (39% together).