The fund performance illusion

Research conducted at theUniversity of StellenboschBusiness School into thelong-term performance ofequity fund managers found that pastperformance was not a reliable indicatorof future performance. The study linksup with the trends revealed by previousinternational and local studies andfound relative persistence in yields inthe short term, but short-term resultsdid not have long-term predictive value.The longer the investigation period, themore the performances would adopt arandom up-and-down movement.The clear message from the researchis a warning to investors. Do not put yourtrust in one active manager only. In the long run, a particular fund’s performancemay deviate substantially from its recenttrack record. The study thus exposes thedanger of accepting current performanceas the sole predictor of futureperformance and suggests, especiallyfor longer-term investments, that investorsmust become better acquaintedwith the investment philosophies anddecision strategies of fund managersbefore making investments.