Money Matters: Historic Investment Performance
Air Line Pilot, Jan. 2001, p. 6
By Robert Lipsey, CFA, ALPA Pension Investment Coordinator
Over the years, numerous studies have looked into whether the track record of an investment manager or a mutual fund can usefully predict future investment return. Surprisingly enough, the results have been mixed, although most studies have found little evidence that superior performance persists.
Recently, Geraldine Miller (ALPA Retirement and Insurance investment performance analyst) and I undertook such a study in preparation for a United Council 12 Pilot Benefit Workshop and Investment Seminar. We began by screening the Morningstar Principia Plus mutual fund database for U.S. stock funds whose performance had ranked in the top 10 percent for the 1-year, 3-year, and 5-year periods ended June 30, 1997.
Out of 3,475 domestic stock funds in this database, 36 (about 1 percent) ranked in the top-10th percentile of funds in their category for each of the three periods. We then compared the results with those of the same fund’s subsequent 3-year (July 1, 1997–June 30, 2000) investment performance (see sidebar, opposite).
The results were consistent with those studies that showed little evidence of leaders maintaining superior performance. Out of the 35 funds (one of the original 36 had been liquidated) whose subsequent 3-year performance we reviewed, only 6 funds (slightly over 17 percent) maintained performance in the top 10th percentile. Additionally, 18 showed up in the top half of peer group funds.
To the extent that the results of the sample represent what might be expected in the future, choosing funds on historic investment results alone may slightly improve the chances of picking a performer in the top-10th percentile and produces results only fractionally better than a dartboard in terms of finding a fund that will perform in the upper half of its peer group over the next 3 years.
|Periods Ending 6/30/97||Period Ending 6/30/00|
|American Capital Exchange||1||2||6||55|
|Calamos Growth & Income A||6||3||9||13|
|Davis Convertible Secs A||1||1||4||74|
|Davis NY Venture A||3||3||1||7|
|Enterprise Growth A||4||3||2||88|
|Fidelity Sel Electronics||1||3||1||31|
|Fidelity Sel Energy Service||1||1||1||2|
|Fidelity Sel Home Finance||1||6||1||97|
|Fidelity Sel Industrial Equip||1||6||6||90|
|First American Special Equity A||2||8||4||98|
|Flag Inv Value Builder A||2||1||3||45|
|FundManager Growth & Inc. Fincl||5||3||6||N/A|
|Kemper-Dreman High Return A||9||3||5||86|
|Legg Mason Value Prim||1||1||1||1|
|Mairs & Power Growth||3||1||1||58|
|MFS Utilities A||1||1||1||10|
|Neuberger & Berman Part||9||7||10||50|
|Pacific Horizon Capital Inc A||4||9||1||37|
|Prudential Utiity A||10||8||3||63|
|Robertson Stephens Val+Growth A||3||5||5||82|
|Seligman Communications & Info A||9||7||6||88|
|Smith Breeden Equity Plus||4||3||2||53|
|State Street Exchange||2||2||9||59|
|State St. Research Glob Res A||4||7||5||68|
|Third Avenue Value||1||1||1||9|
|Van Kampen Am Cap Equity-Inc A||6||5||4||14|
|Van Kampen Am Cap Equity-Inc B||8||8||8||17|
|Vanguard Asset Allocation||9||2||5||10|
|Vanguard Institutional Index||7||5||10||25|
|Vanguard Spec Health Care||4||6||1||23|