How Market Volatility Impacts US Fund Performance

Persistent outperformance in mutual funds and ETFs remains an elusive yet highly desired goal for investors. This report dives into a study covering approximately 9,000 funds with $24 trillion in combined assets, analyzing their ability to sustain performance over one, two, and three years. Interestingly, while short-term persistence can be observed in specific cases, long-term sustained outperformance is rare.

Market volatility plays a critical role in influencing a fund’s ability to sustain its ranking among top performers. Calm markets from 2016–2019 presented a more fertile ground for consistent outperformance, with top-quartile retention rates often exceeding 30%. In contrast, periods like early 2020 saw a rapid drop in persistence rates as volatility spiked, underscoring how challenging turbulent environments can make performance consistency.

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