'Past performance is no guarantee of future results,' charted 📊
Winning fund managers rarely keep winning 📉
It’s incredibly difficult to construct a portfolio of stocks in a way that beats the benchmark.
Last month, I reported on S&P Dow Jones Indices (SPDJI) data that showed more than half of U.S. large-cap equity funds underperformed the S&P 500 during each of the last 12 consecutive years.
On Wednesday, SPDJI published their latest Persistence Scorecard, which tracks the performance of each individual fund over time.
They found that funds that do beat their benchmark in a given year are rarely able to continue outperforming in subsequent years.
According to their research, 29% of 791 large-cap equity funds beat the S&P 500 in 2019. Of those funds, 75% beat the benchmark again in 2020. But only 9.1%, or 21 funds, were able to extend that outperformance streak into 2021.
As you can see from the chart above, the pattern is similar across various categories of equity funds. (You can download the full SPDJI report here.)
SPDJI analysts also reviewed how fund managers performed over time relative to peers in their categories, which you can see in the figure above.
Of large-cap equity funds that performed in the top quartile in 2017, 66% remained there in 2018. And just 3.5% were able to stay in the top quartile during the five consecutive years ending in 2021.
“The Persistence Scorecard shows that regardless of asset class or style focus, active management outperformance is typically short-lived, with few funds consistently outranking their peers or benchmarks,” Berlinda Liu, director of multi-asset indices at SPDJI, wrote.
So, if you’re in the market for an actively managed fund, keep in mind that not only do managers often underperform their benchmarks, the ones that do perform relatively well rarely repeat their success year in and year out.
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