Summary
Strong theoretical arguments and extensive empirical data support the expectation that most active managers should underperform most of the time. But most active managers are not all active managers, and most of the time is not all of the time. When we observe active management success, how can we tell whether it is the product of genuine skill or merely the result of good luck? One answer is that results produced by genuine skill are likely to persist, while those due to luck are likely to prove ephemeral.
The Persistence Scorecard is designed to address this question. Our report for year-end 2022 finds little evidence of persistent active management success, despite considering a variety of metrics and lookback periods. Exhibit 1 illustrates the general point, using 10 years of return data for U.S. equity managers.
Exhibit 1: Top-Half Funds in Years 1-5 Did Not Repeat in Years 6-10
¹ Chicago Booth Review, “Are Markets Efficient?,” June 30, 2016.
² See, e.g., https://www.spglobal.com/spdji/en/research-insights/spiva/.
³ Lazzara, Craig, “Shooting Hoops with Michael Jordan: An Allegory,” S&P Dow Jones Indices, Sept. 29, 2022.