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 suggested only a minority of Australian highperforming 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, 9.7% and 2.2% consistently maintained top-quartile rankings over consecutive three- and five-year periods, respectively. Top-quartile funds in the Australian Bonds fund category had the lowest turnover over both periods.
- The transition matrix, which tracks the trajectory of funds in each quartile, suggested that top-quartile funds in the Australian Bonds fund category had the highest persistence, while Australian Equity Mid- and Small-Cap funds had the least persistence over two nonoverlapping three- and five-year periods.
- Of outperforming funds, 6.5% and 1.3% consistently beat their benchmarks consecutively over three and five years, respectively. The Australian Equity A-REIT category had the highest persistence in terms of its outperforming funds (15.8%) over three consecutive years, but no fund categories showed high persistence in their outperforming funds over five consecutive years.
- Among Australian funds that outperformed their benchmarks, only 16.8% and 21.8% managed to outperform over two successive three- and five-year periods, respectively.
MEASURING PERFORMANCE PERSISTENCE OF AUSTRALIAN ACTIVE FUNDS
Research suggests that actively managed winning streaks are often short lived. Twice a year, S&P Dow Jones Indices releases the Persistence Scorecard, which tracks the performance consistency of U.S. actively managed funds over consecutive years. We have consistently observed that relatively few U.S. active funds can stay at the top for years. In this report, we use similar matrices to measure the persistence of Australian active funds that outperform their benchmarks and their peers over threeand five-year periods. Our study follows the fund categories and benchmarks defined in the SPIVA® Australia Scorecard, a biannual report that tracks the number of active Australian funds that beat their comparable benchmarks over short- and long-term horizons.
