Quit Chasing Unicorns: Consistent Fund Performance Is Overrated
Persistence studies suggest you need to outperform like clockwork to be elite. Balderdash!
Persistence studies suggest you need to outperform like clockwork to be elite. Balderdash!
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: