Quando la prova provata è questa?
It’s no secret that investors often interpret past performance as evidence of manager skill and put their money to work accordingly. But risk-taking that paid off in the past may not continue to do so in the future. Luck—good or bad—may also in uence past performance, but it’s eeting. Many studies have analyzed the relationship between past and future performance and have generally found some evidence of performance persistence over short horizons. But there is less evidence that past performance can predict future performance over longer windows.
This study differs from others by measuring fund performance relative to peers within several Morningstar Categories over several lookback and holding periods. It also uses more recent data than many of the papers published on this topic and digs into the drivers behind these return differences. The study found:
3 There is some evidence that relative fund performance persists in the short term. In the equity categories, this appears to be attributable to differences in exposure to momentum stocks, rather than differences in manager skill.
3 Over the long term, there is no meaningful relationship between past and future fund performance. 3 In most cases, the odds of picking a future long-term winner from the best-performing quintile in
each category aren’t materially different than selecting from the bottom quintile.
3 Survivorship rates are higher among previous winners than they are among previous losers. This difference increases with the length of the prior performance window and subsequent holding period.
Overall, the results strongly indicate that long-term investors should not select funds based on past performance alone. Rather, they should combine performance analysis with an assessment of other quantitative and qualitative factors, such as the fund’s fees, the quality of its investment process and management team, and the stewardship practices of the asset management rm. This more holistic approach should improve investors’ odds of success.