Advisors who have been expecting better performance from actively managed funds should consider the latest S&P Persistence Scorecard, which tracks the consistency of top-performing funds over time.
Of 563 U.S. equity funds that placed in the top quartile as of September 2015, only 6.39% remained there by the end of September 2017. Over the five-year period ending in September 2017, less than 1% of 576 U.S. equity funds that started in the top quartile finished in that quartile.
The percentages were a little higher for funds that placed in the top half of their peers over the next three and five years. Almost one-quarter remained in the top half three years later but less than 1% did so five years later.
“It’s difficult for fund managers to stay on top,” says Ryan Poirier, senior analyst at S&P Dow Jones Indices, one of the co-authors of the latest report. “It’s not just a matter of security selection but also about how portfolio managers implement their strategies.”
In addition, says Poirier, trading costs can have an impact on performance, moving a fund from the bottom of the top quartile to the top of the next lower quartile, for example.
The S&P Persistence Scorecard focuses on the performance of different categories of actively managed funds compared with their peer group, not a market benchmark.
Among U.S. equity funds, small-cap and multi-cap funds showed the best relative performance over three years with roughly 7% of small-cap funds and 10% of multi-cap funds remaining in the top quartile over three consecutive 12-month periods.
Over 23% of small-cap funds and over 22% of multi-cap funds placed in the top half over the three consecutive 12-month periods.