Top-Performing Active Funds Lack Staying Power: Study

As in previous Persistence Scorecards, top-performing actively managed equity funds lost their stellar status more frequently than their fixed income counterparts and the top equity performers lost staying power over time.

Only 2.33% of actively managed domestic equity funds that placed in the top quartile as of March 2016, based on three consecutive 12-month periods, remained there by the end of 2018. Small-cap active funds did best — almost 4% of top performers placed in the top quartile two years later, while mid-cap funds performed worse — not one fund in the top quartile as of March 2016 remained there two years later. And only 1% of top-performing large-cap funds in 2016 held that distinction in 2018.

Top-performing actively managed fixed income funds fared better, led by investment-grade short-term bonds funds followed by government short-term funds. Nineteen percent of top-performing investment-grade short funds in the top quartile held that distinction two years later while almost 17% of top quartile government short bond funds did. The number of funds, however, was much smaller than the number of stock funds — just 21 investment grade short funds and six government short funds.

— Check out Why Low-Cost Index Investing Is Not Necessarily Low Risk on ThinkAdvisor.