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 2016, only 1.0% persistently maintained a top-quartile rank, and 2.0% 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 166 Australian funds that ranked in their respective top quartile in the five-year period ending June 2015, only 31.3% of them remained in the top quartile, and 11.4% were liquidated or merged in the subsequent five-year period.
- Out of the 258 Australian funds that outperformed their respective benchmark in the five-year period ending June 2015, only 28.7% continued to outperform their respective benchmark in the following five-year period, and 14.7% of them were liquidated.
- Overall, the majority of Australian fund categories showed weak performance persistence in top-performing funds across the three- and five-year periods.
