Standard & Poor's Launches New Fund Scorecard

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.”