Persistence Scorecard December 2019 - S&P Global
[Pages:17]Research
Does Past Performance Matter? The Persistence Scorecard
Contributors
Berlinda Liu, CFA Director Global Research & Design berlinda.liu@
Phillip Brzenk, CFA Senior Director Global Research & Design phillip.brzenk@
SUMMARY OF RESULTS
? The S&P Persistence Scorecard attempts to distinguish a manager's luck from skill. One key measure of successful active management lies in the ability of a manager to outperform his peers consistently.
? This report's results show that, irrespective of asset class or style focus, few fund managers consistently outperformed their peers.
? For funds categorized as top performers in September 2017, 47% maintained their top-quartile performance the subsequent year. However, there was a dramatic fall in persistence afterward--just 8% of domestic equity funds remained in the top quartile in the three-year period ending September 2019. This result (8%) is consistent with the notion that historical performance is only randomly associated with future performance.1
? Smaller-cap equity funds recorded lower persistence compared with results from six months prior--mid-cap persistence dropped to 7% from 14%, and small-cap funds sank to 11% from 23% (see Exhibit 1).
Exhibit 1: Performance Persistence over the Three-Year Period Ending
September 2019 versus March 2019
25.0 March 2019
23.3
September 2019 20.0
Performance Persistence of TopQuartile Funds (%)
15.0 11.4
10.0
8.1
5.0
7.3 5.8
13.7 6.9
12.7 12.9 11.0
0.0
All Domestic All Large-Cap All Mid-Cap All Small-Cap All Multi-Cap
Funds
Funds
Funds
Funds
Funds
Source: S&P Dow Jones Indices LLC, CRSP. Data as of Sept. 30, 2019. Chart is provided for
illustrative purposes. Past performance is no guarantee of future results.
1 Given that the universe is broken out into four quartiles, the random odds of a top-performing manager in year one staying in the top quartile in the subsequent two years can be computed as 25% * 25% = 6.25%.
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Does Past Performance Matter? The Persistence Scorecard
December 2019
? An inverse relationship exists between the time horizon length and the ability of topperforming funds to maintain their success. Less than 3% of equity funds in all categories maintained their top-quartile status at the end of the five-year measurement period. In fact, no large-cap fund was able to consistently deliver top-quartile performance by the end of the fifth year.
? Report 3 shows that over 44% of top-quartile large-cap managers from the first three-year period continued to show top performance in the second three-year period--a figure higher than what would be expected at random. Top-quartile mid- (30%) and small-cap (18%) funds did not fare as well.
? For the five-year transition matrix, 32% of top-performing equity funds in the first period remained in the top quartile in the second period. However, 20% of top-quartile funds also moved to the lowest quartile, and an additional 8% of funds were merged or liquidated, highlighting that it was almost as likely for a top-quartile fund to falter than it was to remain in the top quartile.
? Fourth-quartile funds were most likely to be merged or liquidated across categories over the five-year horizon. This supports the view that underperformance typically precedes a fund's closure.
? Top-quartile mortgage-backed securities funds demonstrated the best performance persistence among fixed income funds; 23% of managers maintained their top-performing status during the three-year period ending September 2019. However, this is a decline from the results six months prior (38%).
? Over longer horizons, most fixed income categories showed no persistence: Of the 13 fixed income categories, seven showed no managers remaining in the top quartile over the five-year horizon.
RESEARCH | Active vs. Passive
2
Does Past Performance Matter? The Persistence Scorecard
December 2019
ABOUT THE PERSISTENCE SCORECARD
The phrase "past performance is no guarantee of future results" (or some variation thereof) can be found in the fine print of most mutual fund literature. Yet many investors and advisors consider past performance and related metrics to be important factors in fund selection. So does past performance really matter?
To answer this question, the semiannual S&P Persistence Scorecard tracks the degree to which historical relative performance is predictive of future relative performance. As in our widely followed SPIVA? Scorecards, the University of Chicago's Center for Research in Security Prices (CRSP) Survivorship Bias Free Mutual Fund Database serves as our underlying data source.
S&P Dow Jones Indices is one of the world's leading index providers, maintaining a wide variety of investable and benchmark indices to meet an array of investor needs. Our Global Research & Design team is dedicated to conducting unbiased, in-depth analysis on a broad range of topics and issues facing investors in today's marketplace. This scorecard highlights performance persistence over three and five consecutive 12-month periods and two non-overlapping three- and five-year periods.
Key features of the S&P Persistence Scorecard include:
? Historical rankings without survivorship bias: For anyone making an investment decision, all funds available at the time of that decision are part of the initial opportunity set. Ignoring funds that liquidate or merge during a period of study biases measurements of persistence. Using the University of Chicago's CRSP Survivorship Bias Free Mutual Fund Database, the S&P Persistence Scorecard ranks all funds available at each point in time and tracks the top-quartile and top-half performers throughout the time period.
? Clean universe: The mutual fund universe used in these reports comprises actively managed domestic U.S. equity funds. Index funds, sector funds, and index-based dynamic (bull or bear) funds are excluded from the sample. To avoid double counting multiple share classes, only the share class with the highest previous period return of each fund is used.
? Transition matrices: Transition matrices show the movements between quartiles and halves over two non-overlapping, three- and five-year periods. They also track the percentage of funds that have merged or liquidated. In addition, we monitor movements between capitalization levels. This helps us capture, for example, the conversion of some large-cap funds to mid- and small-cap funds.
? Tracking reports of top performers: The tracking reports show the percentages of funds that remain in the top-quartile or top-half rankings over consecutive three- and five-year periods.
RESEARCH | Active vs. Passive
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Does Past Performance Matter? The Persistence Scorecard
December 2019
REPORTS
Report 1: Performance Persistence of Domestic Equity Funds over Three Consecutive 12-Month Periods
MUTUAL FUND CATEGORY
FUND COUNT AT START (SEPTEMBER 2017)
PERCENTAGE REMAINING IN TOP QUARTILE
SEPTEMBER 2018
SEPTEMBER 2019
TOP QUARTILE
All Domestic Funds
545
46.79
8.07
All Large-Cap Funds
205
53.17
7.32
All Mid-Cap Funds
72
44.44
6.94
All Small-Cap Funds
136
37.50
11.03
All Multi-Cap Funds
132
46.21
12.88
MUTUAL FUND CATEGORY
FUND COUNT AT START (SEPTEMBER 2017)
PERCENTAGE REMAINING IN TOP HALF
SEPTEMBER 2018
SEPTEMBER 2019
TOP HALF
All Domestic Funds
1090
60.83
30.55
All Large-Cap Funds
409
63.08
24.21
All Mid-Cap Funds
145
60.00
35.17
All Small-Cap Funds
271
54.98
31.37
All Multi-Cap Funds
265
56.23
24.15
Source: S&P Dow Jones Indices LLC, CRSP. Data as of Sept. 30, 2019. Table is provided for illustrative purposes. Past performance is no guarantee of future results.
Report 2: Performance Persistence of Domestic Equity Funds over Five Consecutive 12-Month Periods
MUTUAL FUND CATEGORY TOP QUARTILE
FUND COUNT AT START (SEPTEMBER 2015)
PERCENTAGE REMAINING IN TOP QUARTILE
SEPTEMBER 2016
SEPTEMBER 2017
SEPTEMBER 2018
SEPTEMBER 2019
All Domestic Funds
567
17.64
6.53
4.06
0.88
All Large-Cap Funds
220
14.09
6.36
5.00
0.00
All Mid-Cap Funds
80
16.25
1.25
1.25
1.25
All Small-Cap Funds
132
20.45
7.58
3.79
1.52
All Multi-Cap Funds
135
17.04
10.37
6.67
2.22
MUTUAL FUND CATEGORY TOP HALF
FUND COUNT AT START (SEPTEMBER 2015)
PERCENTAGE REMAINING IN TOP HALF
SEPTEMBER 2016
SEPTEMBER 2017
SEPTEMBER 2018
SEPTEMBER 2019
All Domestic Funds
1135
45.64
24.49
16.83
8.37
All Large-Cap Funds
440
41.82
20.00
15.68
6.36
All Mid-Cap Funds
160
40.62
18.75
15.00
12.50
All Small-Cap Funds
265
44.15
23.02
13.96
7.55
All Multi-Cap Funds
270
43.70
21.85
16.67
8.89
Source: S&P Dow Jones Indices LLC, CRSP. Data as of Sept. 30, 2019. Table is provided for illustrative purposes. Past performance is no guarantee of future results.
RESEARCH | Active vs. Passive
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Does Past Performance Matter? The Persistence Scorecard
December 2019
Report 3: Three-Year Transition Matrix ? Performance over Two Non-Overlapping Three-Year Periods (Based on Quartile)
ALL DOMESTIC FUNDS
FUND COUNT AT START (SEPTEMBER
2016)
1st Quartile
514
1ST QUARTILE
(%)
44.94
THREE-YEAR PERCENTAGES AT END
2ND QUARTILE
(%)
3TH QUARTILE
(%)
4TH QUARTILE
(%)
MERGED/ LIQUIDATED
(%)
25.49
13.62
10.51
5.25
STYLE CHANGED
(%)
0.19
2nd Quartile
515
14.37
29.51
26.02
19.03
11.07
0.00
3rd Quartile
514
11.09
16.54
30.35
24.32
16.15
1.56
4th Quartile
514
15.37
14.20
15.56
31.91
21.60
1.36
ALL LARGE-CAP FUNDS
1st Quartile
201
44.28
23.38
10.95
8.96
3.98
8.46
2nd Quartile
201
19.90
32.84
20.40
9.45
8.96
8.46
3rd Quartile
200
8.00
10.00
25.50
27.00
16.50
13.00
4th Quartile
201
3.48
9.45
18.91
30.35
24.88
12.94
ALL MID-CAP FUNDS
1st Quartile
71
29.58
9.86
22.54
22.54
8.45
7.04
2nd Quartile
71
12.68
22.54
25.35
22.54
9.86
7.04
3rd Quartile
71
14.08
25.35
19.72
9.86
15.49
15.49
4th Quartile
71
16.90
15.49
5.63
18.31
29.58
14.08
ALL SMALL-CAP FUNDS
1st Quartile
119
18.49
35.29
26.89
14.29
2.52
2.52
2nd Quartile
118
14.41
24.58
21.19
27.12
10.17
2.54
3rd Quartile
119
27.73
16.81
21.01
18.49
12.61
3.36
4th Quartile
118
25.42
9.32
16.10
26.27
20.34
2.54
ALL MULTI-CAP FUNDS
1st Quartile
124
30.65
21.77
11.29
11.29
5.65
19.35
2nd Quartile
124
13.71
27.42
20.97
12.90
10.48
14.52
3rd Quartile
124
12.10
11.29
16.13
16.94
20.16
23.39
4th Quartile
124
10.48
7.26
18.55
25.81
20.16
17.74
Source: S&P Dow Jones Indices LLC, CRSP. Data as of Sept. 30, 2019. Table is provided for illustrative purposes. Past performance is no guarantee of future results.
RESEARCH | Active vs. Passive
5
Does Past Performance Matter? The Persistence Scorecard
December 2019
Report 4: Three-Year Transition Matrix ? Performance over Two Non-Overlapping Three-Year Periods (Based on Halves)
ALL DOMESTIC FUNDS
Top Half
FUND COUNT AT START (SEPTEMBER
2016)
1029
TOP HALF (%) 57.14
THREE-YEAR PERCENTAGES AT END
BOTTOM HALF (%) MERGED/LIQUIDATED (%)
34.60
8.16
STYLE CHANGED (%) 0.10
Bottom Half
1028
28.60
51.07
18.87
1.46
ALL LARGE-CAP FUNDS
Top Half
402
60.20
24.88
6.47
8.46
Bottom Half
401
15.46
50.87
20.70
12.97
ALL MID-CAP FUNDS
Top Half
142
37.32
46.48
9.15
7.04
Bottom Half
142
35.92
26.76
22.54
14.79
ALL SMALL-CAP FUNDS
Top Half
237
46.41
44.73
6.33
2.53
Bottom Half
237
39.66
40.93
16.46
2.95
ALL MULTI-CAP FUNDS
Top Half
248
46.77
28.23
8.06
16.94
Bottom Half
248
20.56
38.71
20.16
20.56
Source: S&P Dow Jones Indices LLC, CRSP. Data as of Sept. 30, 2019. Table is provided for illustrative purposes. Past performance is no guarantee of future results.
RESEARCH | Active vs. Passive
6
Does Past Performance Matter? The Persistence Scorecard
December 2019
Report 5: Five-Year Transition Matrix ? Performance over Two Non-Overlapping Five-Year Periods (Based on Quartile)
ALL DOMESTIC FUNDS
FUND COUNT AT START (SEPTEMBER
2014)
1st Quartile
485
1ST QUARTILE
(%)
31.75
FIVE-YEAR PERCENTAGES AT END
2ND QUARTILE
(%)
3TH QUARTILE
(%)
4TH QUARTILE
(%)
MERGED/ LIQUIDATED
(%)
21.44
18.14
20.21
8.04
STYLE CHANGED
(%)
0.41
2nd Quartile
484
23.76
21.69
21.07
18.18
14.88
0.41
3rd Quartile
485
14.02
22.47
23.30
17.53
21.86
0.82
4th Quartile
484
10.54
14.46
17.56
24.17
30.99
2.27
ALL LARGE-CAP FUNDS
1st Quartile
188
30.32
21.28
15.96
10.64
10.64
11.17
2nd Quartile
188
19.15
18.62
16.49
15.96
16.49
13.30
3rd Quartile
187
8.56
18.72
18.18
20.32
20.86
13.37
4th Quartile
188
9.57
8.51
17.02
20.21
28.72
15.96
ALL MID-CAP FUNDS
1st Quartile
73
26.03
10.96
19.18
20.55
9.59
13.70
2nd Quartile
74
18.92
10.81
14.86
22.97
18.92
13.51
3rd Quartile
73
13.70
19.18
19.18
8.22
23.29
16.44
4th Quartile
73
5.48
23.29
9.59
12.33
30.14
19.18
ALL SMALL-CAP FUNDS
1st Quartile
112
25.89
26.79
17.86
18.75
8.04
2.68
2nd Quartile
112
21.43
16.96
25.00
18.75
15.18
2.68
3rd Quartile
111
16.22
18.92
19.82
20.72
20.72
3.60
4th Quartile
112
16.07
16.96
16.07
21.43
25.89
3.57
ALL MULTI-CAP FUNDS
1st Quartile
112
25.89
15.18
12.50
16.07
5.36
25.00
2nd Quartile
112
17.86
21.43
16.96
8.93
11.61
23.21
3rd Quartile
111
7.21
12.61
18.02
12.61
25.23
24.32
4th Quartile
112
6.25
7.14
9.82
18.75
33.93
24.11
Source: S&P Dow Jones Indices LLC, CRSP. Data as of Sept. 30, 2019. Table is provided for illustrative purposes. Past performance is no guarantee of future results.
RESEARCH | Active vs. Passive
7
Does Past Performance Matter? The Persistence Scorecard
December 2019
Report 6: Five-Year Transition Matrix ? Performance over Two Non-Overlapping Five-Year Periods (Based on Halves)
ALL DOMESTIC FUNDS
Top Half
FUND COUNT AT START (SEPTEMBER
2014)
969
TOP HALF (%) 49.33
FIVE-YEAR PERCENTAGES AT END
BOTTOM HALF (%) MERGED/LIQUIDATED (%)
38.80
11.46
STYLE CHANGED (%) 0.41
Bottom Half
969
30.75
41.28
26.42
1.55
ALL LARGE-CAP FUNDS
Top Half
376
44.68
29.52
13.56
12.23
Bottom Half
375
22.67
37.87
24.80
14.67
ALL MID-CAP FUNDS
Top Half
147
33.33
38.78
14.29
13.61
Bottom Half
146
30.82
24.66
26.71
17.81
ALL SMALL-CAP FUNDS
Top Half
224
45.54
40.18
11.61
2.68
Bottom Half
223
34.08
39.01
23.32
3.59
ALL MULTI-CAP FUNDS
Top Half
224
40.18
27.23
8.48
24.11
Bottom Half
223
16.59
29.60
29.60
24.22
Source: S&P Dow Jones Indices LLC, CRSP. Data as of Sept. 30, 2019. Table is provided for illustrative purposes. Past performance is no guarantee of future results.
RESEARCH | Active vs. Passive
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