Can investment results be attributed to skill or luck? Genuine skill is more likely to persist, while luck is random and fleeting. Thus, one measure of skill is the consistency of a fund’s performance relative to its peers. The Persistence Scorecard measures that consistency and shows that, regardless of asset class or style focus, active management outperformance tends to be relatively short lived, with few funds consistently outranking their peers.
Among a total of 193 funds in our seven reported regional fund categories across Brazil, Chile and Mexico whose performance placed them in the top quartile for the 12-month period ending December 2018, only two funds (less than 5%) managed to remain in the top quartile for each of the next four years (see Report 2). Exhibit 1 illustrates that across all categories except one, less than 50% of funds were able to repeat their top-half status over two consecutive five-year periods.
- Brazil’s top-performing equity fund managers did not maintain their outperformance in subsequent years. Among equity funds ranked in the top-quartile for the 12 months ending December 2018, none remained consistently in the top quartile over the subsequent three one-year periods (see Report 2). Active fund outperformance in 2020 did not predict outperformance in the two subsequent years (see Report 1b).
- The Brazil Government Bond funds category showed similar erosion of outperformance, with precisely zero top-quartile managers as of December 2018 managing to remain in the top quartile for the subsequent four 12-month periods (see Report 2).
- Brazil Corporate Bond funds fared slightly better, with 4.8% of managers maintaining consistent top-quartile performance for five years in a row, and 33.3% remaining in the top quartile for two consecutive five-year periods (see Report 2 and Report 5).
- The rarity of persistence by equity managers was equally visible in Chile, with only one out of nine (11.1%) of the top-quartile funds in the first 12-month period repeating its outperformance for the subsequent four years (see Report 2).
- Report 3 shows that 25.0% of the top-quartile funds in the first period of the three-year transition matrix remained in the top quartile at the end of the second period.
- Among funds ranked in the top half for the three years ending December 2019, the majority either fell to the bottom half, were merged or were liquidated over the subsequent three-year period (see Report 4).
- Similar to the other regions, top-quartile managers in Mexico had difficulty replicating their rank in subsequent years. After one year, just 18.2% of Mexico Equity funds remained in the top quartile, and after four years, none remained (see Report 2).
- The five-year transition matrix shows that 60% of top-quartile funds subsequently dropped to quartile three or four over the five-year period, or were merged or liquidated, while only 20.0% remained in the top (see Report 5).
- Consistent with data from the SPIVA® Latin America Year-End 2022 Scorecard, Mexico had a higher fund survival rate than Brazil and Chile across all periods measured. Reports 3, 4, 5 and 6 show that, on average, Mexican funds were less likely to be shut down than Brazilian and Chilean funds.