New research from S&P Dow Jones Indices LLC confirms a long-standing investing axiom — past performance is no guarantee of future results — in fact, it may be a contra indicator.
The report, which aims to measure the sustainability of top-performing active managers, finds that very few top quartile fund managers can maintain their standing over time.
In its inaugural Canada Persistence Scorecard, S&P finds “regardless of asset class or style focus, few Canadian fund managers have consistently outperformed their peers.”
In fact, top performing managers “were more likely to become a bottom quartile fund,” it said.
Among other things, the research found that none of the equity funds in the top quartile for their category in 2015 remained in the top quartile each year through 2019.
S&P also reported that none of the top quartile Canadian equity and Canadian dividend & income equity funds in 2015 made the top quartile in 2016.
“This may reflect the difficulty of market timing during extreme market swings,” it said, noting that the S&P/TSX Composite Index was down 8.3% in 2015, but gained 21.1% in 2016.
“Funds within a category that were more defensively positioned may have outperformed their peers in 2015, but did not pivot in time to make the most of 2016’s gains,” said the report.
For domestic equity funds that were in the top quartile in the 2010-2014 period, the research found that only 30% managed to beat the median in the 2015-2019 period, and 23% ended up in liquidation or changing their investment styles.