INTRODUCTION
- A key dimension of the active versus passive debate is managers' ability to consistently deliver above-average returns over multiple time periods. Persistence in performance is one of many possible ways to differentiate skill from luck.
- In this report, we measure the performance persistence of active funds in Brazil, Chile, and Mexico that outperformed their peers over consecutive three- and five-year periods. We also analyze how their performance ranking transitioned over subsequent periods.
SUMMARY OF RESULTS
Brazil
- Top performers in the fixed income fund categories showed better chances than equity categories to remain in the top quartile over three years (see Report 1).
- Report 2 highlights the inability of top-performing equity fund managers to consistently repeat success in subsequent years. Large-cap fund managers showed the least persistence—by the fourth year none of them remained in the top quartile.
- Within the Brazil Corporate Bond Funds category, only 15% were able to maintain consistent outperformance for five years in a row. Brazil Government Bond Fund managers had somewhat better results; 22% of them delivered consistent outperformance for five years in a row (see Report 2).
- The five-year transition matrix (see Report 5) highlights the Brazil Equity Fund and Brazil Government Bond Fund categories. The chance of a winning fund remaining in the top quartile after five one-year periods was lower than the chance of it liquidating.
- More than half (57%) of the top-quartile funds in the Brazil Corporate Bond Funds category remained in the top quartile, and the rest were merged or liquidated by the end of the five-year period (see Report 5).
Chile
- Report 2 shows a lack of persistence among equity managers in Chile—only 20% of top performing funds in the first 12-month period repeated their outperformance after three years. None of the top-performing funds persisted in the subsequent periods.
- Top-quartile managers' funds in the first period of the five-year transition matrix were more likely to be liquidated (67%) than to stay in the first quartile (22%) or move to lower quartiles (11%). Lack of resilience also characterized managers who started in the subsequent quartiles (see Report 5).
Mexico
- As observed in the SPIVA® Latin America Year-End 2020 Scorecard, Mexico had a higher rate of fund survivors than Brazil and Chile in the three-year and five-year periods. Reports 3, 4, 5, and 6 show that Mexican funds had a lower chance of being shut down than Brazilian and Chilean funds.
- The five-year performance persistence test (see Report 2) shows that top-quartile managers had difficulty replicating their outperformance in subsequent years. After one year, just 36% of managers remained in the top quartile, and by the end of year two, none remained.
- Report 5 shows that top-quartile managers in the first five-year period survived in the second five-year period; however, they were more likely to move to quartile three or four than remain in the top.
