Standard & Poor's launched the first scorecard in the U.S. that measures the consistency of top-performing mutual funds over three and five consecutive years. The semiannual scorecard also measures the persistence of fund performance for the one-, three- and five-year non-overlapping periods.
As of May 31, only 10.7% of large-cap funds, 9.2% of mid-cap funds, and 11.5% of small-cap funds maintained a top-quartile ranking over three consecutive years. The data on the scorecard also show that 28.9% of large-cap, 26.4% of mid-cap and 27.9% of small-cap funds maintained a top-half ranking over the same time period.
In addition, the scorecard tracks cumulative performance over two non-overlapping three-year periods. The average top-quartile repeat performance was 27.7%, and the average top-half repeat performance was 47.9%.
Not surprisingly, Standard & Poor's determined that fourth-quartile funds had a higher probability of disappearing. Over the three-year time horizon, 33.5% of large-cap, 32.3% of mid-cap, and 26.9% of small-cap fourth-quartile funds disappeared due to mergers or liquidations. A large percentage of the fourth-quartile funds that survived still remained in the bottom half.
"Our research suggests that maintaining a top quartile position over longer horizons is very difficult," says Srikant Dash, index strategist at Standard & Poor's. "Only 3.0% of small-cap funds maintained a top quartile ranking over two non-overlapping five-year periods, while there were no such funds in the large- and mid-cap category. Repeat top-half performers totaled 18.2%, 12.9% and 17.2% for large-cap, mid-cap and small-cap funds, respectively."
"Whether we viewed consecutive 12-month performance or non-overlapping cumulative periods, the characteristics of top-half winners were similar," notes Rosanne Pane, mutual fund strategist at Standard & Poor's. "Management experience counts, expenses matter, and protecting the downside helps. Consistent top-half performers had longer manager tenure and lower expenses relative to their peers. In addition, consistent winners also minimized or avoided losses during the bear market relative to their peers."
The complete semiannual scorecard is available at www.standardandpoors.com.
Contact Bob Keane with questions or comments at:firstname.lastname@example.org