EXECUTIVE SUMMARY
- While comparing active funds against respective benchmark indices is a typical practice to evaluate their performance, persistence is an additional test that can reveal 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.
- Overall results showed only a minority of high-performing Australian funds persisted in outperforming their respective benchmarks or consistently stayed in their respective top quartiles for three or five consecutive years.
- Among top-quartile funds, 14.1% and 1.0% consistently maintained top-quartile rankings over consecutive three- and five-year periods, respectively. Top-quartile funds in the Australian Bonds category had the highest performance persistence among all categories.
- The transition matrix, which tracks the trajectory of funds in each quartile, also showed that top-quartile funds in the Australian Bonds category had the highest persistence, with more than 75% of funds showing performance persistence over two non-overlapping three- and five-year periods.
- Over three and five consecutive years, 15.8% and 1.3% of outperforming funds consistently beat their benchmarks, respectively. The Australian Equity Mid- and Small-Cap funds had the highest persistence over three consecutive years, but no fund category showed persistent outperformance over five consecutive years.
- None of the fund categories exhibited strong performance persistence over the two successive five-year periods, but funds that outperformed in the first five-year period tended to have a lower liquidation rate in the subsequent five years across all categories.
