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 threeand 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 2014, only 2.2% persistently maintained a top quartile rank, and 4.0% 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 beat their respective benchmarks, and most funds in the top quartile did not remain there consistently.
- Out of the 144 Australian funds that ranked in their respective top quartile in the five-year period ending June 2013, less than half of them remained in the top two quartiles, and 15.3% were liquidated or merged in the subsequent five-year period.
- Out of the 303 Australian funds that outperformed their respective benchmark in the five-year period ending June 2013, only 27.7% continued to outperformed their respective benchmark in the following five-year period.
- Overall, results from various evaluation matrices suggest weak performance persistence in top-performing funds in Australia across the three- and five-year periods, with Australian Bond funds tending to have the strongest performance persistence among all the categories.
