Looking for consistent top performance? Most active funds don't have it

Looking for consistent top performance? Most active funds don't have it
The longer the time period, the less likely they are to outperform.
DEC 12, 2016
If the fund industry was hoping for breakout performance from actively managed funds, its hopes were once again dashed by S&P Dow Jones Indexes. “It's the persistence of nonpersistence,” said Aye M. Soe, Senior Director, Global Research & Design for S&P. Just 2.46% of large-cap domestic stock funds managed to say in the top 25% of performance rankings over three consecutive 12-month periods, according to S&P's Persistence Scorecard . Other diversified funds didn't fare much better: Out of 631 domestic equity funds that were in the top quartile as of September 2014, only 2.85% managed to say in the top 25% by September 2016. The top 25% is a tough place to stay over a long time. Using just the top half — in other words, above-average performance — 18.07% of large-cap funds, 22.95% of mid-cap funds, and 20.88% of small-cap funds maintained a top-half ranking. Things get even worse over longer time periods. Fewer than 1% of large-cap funds and no mid-cap or small-cap funds managed to remain in the top quartile at the end of the five-year measurement period, S&P says. Given the lack of persistence in performance and the popularity of index funds, it's not surprising that a fair number of poor performers are now singing with the Choir Invisible. In the past five years, 28.30% of large-cap funds, 23.73% of mid-cap funds, and 29.70% of small-cap funds in the fourth quartile have been liquidated or merged out of existence. Fixed income funds fared somewhat better than stock funds, but their record is nothing to crow about. Just 3.7% of high-yield funds were able to maintain first-quartile performance for three consecutive years, and no global incomes were able to do so. Long-term government bond funds (53.33%) and general municipal bond funds (45%) had the best chance of keeping in the top 25% of their categories. Ms. Aye noted, however, that the categories with the best persistence of performance tends to shift from year to year. “The key takeaway is that past performance doesn't predict future returns,” she said. For advisers, the study means that they can't rely only on past performance for make fund picks. S&P adjusts its figures to correct for dead or liquidated funds, using the University of Chicago's Center for Research in Security Prices (CRSP) Survivorship Bias Free Mutual Fund Database.

Latest News

Advisor moves: LPL welcomes $750M Osaic team, Raymond James recruits Wells Fargo duo in New York
Advisor moves: LPL welcomes $750M Osaic team, Raymond James recruits Wells Fargo duo in New York

Elsewhere in Utah, Raymond James also welcomed another experienced advisor from D.A. Davidson.

UBS loses arbitration battle in fiduciary fight over foundation funds
UBS loses arbitration battle in fiduciary fight over foundation funds

A federal appeals court says UBS can’t force arbitration in a trustee lawsuit over alleged fiduciary breaches involving millions in charitable assets.

RIA moves: NorthRock adds $800M Parkside Advisors, NFP acquires Levine Group in Tennessee
RIA moves: NorthRock adds $800M Parkside Advisors, NFP acquires Levine Group in Tennessee

NorthRock Partners' second deal of 2025 expands its Bay Area presence with a planning practice for tech professionals, entrepreneurs, and business owners.

Three easy ways to boost your firm’s impact this summer
Three easy ways to boost your firm’s impact this summer

Rather than big projects and ambitious revamps, a few small but consequential tweaks could make all the difference while still leaving time for well-deserved days off.

Hightower taps Osaic alum Scott Hadley as first chief advisory officer, expands C-suite
Hightower taps Osaic alum Scott Hadley as first chief advisory officer, expands C-suite

Hadley, whose time at Goldman included working with newly appointed CEO Larry Restieri, will lead the firm's efforts at advisor engagement, growth initiatives, and practice management support.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.