Stocktake: Fund managers go from hero to zero

Looking at yesterday’s top-performing funds in order to find tomorrow’s winners? The message from the latest S&P Dow Jones Indices SPIVA scorecard is simple: don’t bother.

It found only 29 per cent of 791 large-cap stock funds beat the S&P 500 in 2019. Of those, 75 per cent again outperformed in 2020. Had those funds discovered a winning strategy? Alas, no – only 9.1 per cent, or 21 funds, outperformed again in 2021.

Looking at all US funds, S&P’s Berlinda Liu found only 2.2 per cent of 2019’s top performers remained in the top quartile by 2021.

This doesn’t settle the old debate as to whether investment returns are down to skill or luck. Some managers may well be genuinely skilled performers who consistently deliver the goods.

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Nevertheless, from a practical or decision-making perspective, says Liu, it reinforces the idea that choosing an active fund on the basis of previous outperformance is a “misguided strategy”. Past performance really is no guide to future returns.