Past Performance is no indicator of Future Performance

When it comes to investing, be it Superannuation or any other form of financial investment, we read or hear the line 'past performance is no reliable indicator of future performance'. Often we dismiss this as rhetoric, something fund managers have to say.

However the reality is that it is very true. It is extremely difficult for a fund manager to out-perform the market over a period of time.

According to the Standard and Poors (S&P) Persistence Scorecard 2017, relatively few funds can consistently stay at the top.  Of the equity funds that were in the top quartile as of September 2015, only 6.39% managed to stay in the top quartile at the end of September 2017.  Over a 4 year period, only 0.8% remained in the top quartile.

Over three consecutive 12-month periods, only 19.49% of large-cap funds maintained a top half ranking, so 80% of the top 50% were no longer in the top half only 3 years later.

Effectively no fund managers remained in the top 25% performers after 4 years, more alarming is the fact that after 2 years only 3.48% remained.

It is quite simply impossible to out-perform the market index over time.  We urge caution against anyone who says they can, it is a statistical impossibility.