The Fleeting Alpha Scorecard is a semiannual report showing how well outperforming mutual funds from one three-year period continue to outperform thereafter. It combines two other S&P Dow Jones Indices reports, the SPIVA® U.S. Scorecard and the the Persistence Scorecard. The former measures the percentage of active managers that beat their benchmarks across various equity and fixed income categories. The latter shows the likelihood that strong performers in early periods maintain their status relative to other funds in subsequent periods.
For the Fleeting Alpha Scorecard, we first identify funds that beat their benchmarks, based on three-year annualized returns, net-of-fees. We then examine whether these funds continue to outperform during each of the next three one-year periods.
Report 1 shows the performance persistence of managers investing in various domestic and international equity categories, based on trailing three-year returns. Of the 18 categories in domestic equity, eight did not show funds with alpha persistence after three years. For example, as of Dec. 31, 2016, roughly 10% of 313 large-cap value funds had outperformed the S&P 500® Value in the previous three years. By the end of 2019, none of these 31 winners had maintained that status for three consecutive years. Of the winners at the end of 2016, just 12.9% of all domestic equity funds beat the S&P Composite 1500® in each of the three following one-year periods.
The vast majority of domestic equity funds showed little outperformance persistence, with notable exceptions in the small- and mid-cap spaces. Improvement in persistence mainly came from the mid-cap growth funds and the small-cap growth funds, in which 67% and 50%, respectively, of the past winners were able to generate positive alpha in the three subsequent one-year periods (in a small sample size).