Persistence is an important factor to consider when assessing the value of active management. The value of an active manager will diminish if there is little guarantee of strong future results after one good year, and it is not practical to replace managers in search of the next outperformer. However, if there is a way of predicting future success with current results, then it is possible that an investor can make a better-educated prediction of a manager’s projected performance.
We assessed the persistence of success of well-performing actively managed funds and found that past performance is not indicative of future results. These results can help assess the potential quantitative efficacy of using active management and assessing the current performance of active management. One should note, however, that the paper is purely statistical in nature and does not account for qualitative insights, risk, or other economic factors.