SUMMARY OF RESULTS
- One key measure of successful active management lies in the ability of a manager or a strategy to outperform their peers repeatedly. Consistent success is the one way to differentiate a manager’s luck from skill.
- The S&P Persistence Scorecard shows that few funds consistently outperformed their peers; 11.4% of domestic equity funds remained a top-quartile fund over the three-year period ending March 2019.
- Smaller-cap equity funds recorded better performance persistence compared with results from six months prior; 23.3% (versus 7.7%) and 13.7% (versus 4.0%) of small- and mid-cap funds, respectively, remained in the top quartile during the three-year period ending March 2019.
- The ability of top-performing funds to maintain their status typically fell over longer horizons. For example, zero large-, mid-, or multi-cap funds maintained their top-quartile status at the end of the five-year measurement period.
- Top-performing funds were more likely to become the worst-performing funds than vice versa over the five-year horizon. While 15.3% of bottom-quartile domestic equity funds moved to the top quartile, a greater percentage (31.5%) of top-quartile funds moved to the bottom quartile during the same period.
- Fourth-quartile funds were most likely to be merged or liquidated in nearly every category. This supports the view that underperformance typically precedes a fund’s closure.
- Top-quartile mortgage-backed securities funds offered the best performance persistence among fixed income funds; 38.5% maintained their status during the three-year period ending March 2019.
- A turnaround in the bond market’s outlook appeared to wrong-foot many top-quartile fixed income managers. While many top performers—as of March 2017—maintained their status the following year, there was a dramatic fall in persistence after March 2018.
- Over longer horizons, the majority of fixed income categories showed no persistence. Investment-grade intermediate funds (2.1%) and general municipal debt funds (10.53%) offered the exceptions over the five-year horizon.