Quit Chasing Unicorns: Consistent Fund Performance Is Overrated

Every six months, S&P Dow Jones puts out a "persistence scorecard" that measures the consistency of active funds. The study works more or less as follows: It tallies the number of funds that outperform in one period and then tracks those outperformers over subsequent periods to see how many were able to repeat that feat. What S&P finds is that nearly every active fund flunks this simple test. Not surprisingly, it uses that finding as ammo to argue against active funds in favor of indexing.

I don't quarrel too much with that conclusion (like S&P, I think most investors are better off going passive), but it has nothing to do with "persistence," which is a red herring for a couple of reasons: