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%.

Register to receive our latest research, education, and commentary at go.SignUp.

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

3

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

4

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

8

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download