Does Past Performance Matter?

The phrase “past performance is not a guarantee of future results” has never rung more true for active mutual funds.  Our semi-annual publication, the Persistence Scorecard, takes a look at the performance of top quartile active funds over three- and five-year consecutive 12-month periods.  Based on the most recently released report, out of 269 large cap funds that were in the top quartile as of March 31 2011, only 3.35% (amounting to only 9 funds) remain in the top quartile at the end of March 2013.  It is worth noting that of the 102 mid cap funds that were in the top quartile, there was none left at the end of March 2013.

In short, the report is a sobering reminder that we cannot use the past performance figures as the sole or the most important criteria in fund selection.  In addition, the transition matrices in Report 4 and 5 suggest that a healthy percentage of top quartile funds in the subsequent period come from prior period second or third quartiles.


The posts on this blog are opinions, not advice. Please read our disclaimers.

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