Asset managers of actively managed equity funds crow about the benefits of active management during downturns and volatile markets like the one we’re currently experiencing. While that may be true of individual funds at certain times, it’s not true of most actively managed funds over time.
In its latest persistence scorecard, S&P Dow Jones Indices reports that just 21% of top-performing U.S. equity funds over the 2010-2014 period remained in the top quartile over the following five-year period, from 2015-2019. Moreover, 10% disappeared through merger or liquidation.
Almost 30% of the poorest performers, in the bottom quartile for 2010-2014 period, closed during the subsequent five-year period, and multi-cap funds were the most vulnerable, with 38% merging or liquidating.
“The one pattern that did hold across equity funds was the tendency of the poorest [performing] funds to close,” according to the report written by Berlinda Liu, director of global research & design at S&P Dow Jones Indices.
These performance patterns among top and bottom performers were evident also during a shorter three-year periods, when comparing performance from 2014-2016 to performance from 2017-2019.
Less than 13% of U.S. equity funds in the earlier three-year period remained in the top quartile during the following three-year period, but just 7% closed.