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While comparing returns against a benchmark is a common practice to evaluate the performance of active funds, performance persistence is an additional test of the fund managers’ skills at overcoming different market environments. In this report, we measured the performance persistence of active funds that outperformed their peers and benchmarks over consecutive three- and five-year periods, and their transition matrices over subsequent time periods.
Overall results from various evaluation matrices showed that 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. Of the top-quartile funds, 14.1% and 1.0% consistently maintained top-quartile rankings over consecutive three- and five-year periods, respectively. Top-quartile funds in the Australian Bonds category had the lowest turnover for both periods. The transition matrix tracking the trajectory of funds in each quartile suggested that top-quartile funds in the Australian Bonds fund category had the highest persistence, with more than 75% of funds showing performance persistence over two non-overlapping three- and five-year periods.
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