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Genuine skill is more likely to persist, while luck is random and fleeting. Thus, one measure of skill is the consistency of a fund’s performance relative to its peers. The Persistence Scorecard measures that consistency and shows that, regardless of asset class or style focus, active management outperformance is typically relatively short-lived, with few funds consistently outranking their peers. Overall results suggested only a minority of Australian high-performing funds persisted in outperforming their respective benchmarks or consistently stayed in their respective top quartiles for three or five consecutive years.
Can investment results be attributed to skill or luck? Genuine skill is more likely to persist, while luck is random and fleeting. Thus, one measure of skill is the consistency of a fund’s performance relative to its peers. The Persistence Scorecard measures that consistency and shows that, regardless of asset class or style focus, active management outperformance is typically relatively short-lived, with few funds consistently outranking their peers.
Within each of our reported fund categories across Australian Equity General, Australian Equity Mid- and Small-Cap, International Equity General, Australian Bonds and Australian Equity A-REIT, among all the funds whose performance placed them in the top quartile for the 12 months ending June 2018, not a single fund managed to remain in the top quartile for the next four years.
On the other hand, lowering the bar from the top quartile to the top half yields tentative evidence of persistence among a fraction of funds within the Australian Bond funds category. As Exhibit 1 illustrates, 10% of active funds in that category were able to repeat their top-half status over four consecutive five-year periods.
Please visit S&P Dow Jones Indices website here to download the full Australian Persistence Scorecard: Mid-Year 2022 report.
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