INTRODUCTION
A key dimension of any active versus passive debate is managers’ ability to consistently deliver above-average returns over multiple periods. Persistence in performance is one out 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 Brazilian fixed income fund categories showed better chances than equity categories of remaining 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. The least persistent were Brazil Equity Fund managers—by the fourth year, just 3% of them remained in the top quartile and none by the fifth year.
- The majority of Brazil Corporate Bond Fund managers did not maintain consistent outperformance for five years in a row; only 7% of them were able to persist. Brazil Government Bond Fund managers did not show better results; 2% 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 Corporate Bond Funds category. 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 (59%) of the top-quartile funds in the Brazil Equity Funds category remained in first and second quartile over the five-year period (see Report 5).
Chile
- Report 2 shows the lack of persistence by equity managers in Chile—just 10% of top-performing funds in the first 12-month period repeated their outperformance after five years.
- In Report 3, we can observe that 13% of the top-quartile funds in the first period of the three-year transition matrix remained in the top-quartile after three years.
- Funds in third quartile of the five-year transition matrix were more likely to be liquidated (78%) than to stay or move to lower quartiles (see Report 5).
Mexico
- As observed in the SPIVA® Latin America Mid-Year 2021 Scorecard, Mexico had a higher rate of fund survivorship than Brazil and Chile in the three- 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 27% 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 the fourth quartile than remain in the top.
