As the ETF market prepares for a likely influx of new actively managed funds ETF following SEC approval of a nontransparent actively managed ETF strategy, financial advisors may want to consider the repeated underperformance of actively managed mutual funds.
According to the latest Persistence Scorecard from S&P Dow Jones Indices, few actively managed mutual funds consistently placed in the top performance quartile over three consecutive 12-month periods and even less performed as well over five consecutive 12-month periods.
The latest scorecard, covering the six months through March 2019, found that just over 11% of actively managed U.S. equity funds remained in the top quartile three years later while less than 1% stayed there after five years.
Small-cap equity funds fared best, with just over 23% placing in the top quartile over three years. Large-cap stock funds performed worst — less than 6% scored in the top quartile over three years. In between those two extremes were mid-cap and multi-cap equity funds, with roughly 14% and 13%, respectively, remaining in the top quartile over three years.
Persistent performance for all U.S. equity fund categories over five consecutive 12-month periods was virtually nonexistent. Only small-cap funds scored above zero for the percentage of funds remaining in the top quartile, but that number was below 1%.
Bond funds showed more staying power than stock funds, but fewer than one-quarter remained in the top quartile over three consecutive 12-month periods and almost none stayed in the top quarter over five consecutive 12-month periods.