Keeping Top Ranking Tough for Funds

An S&P news release said that as of December 31, 2005, only 15.5% of large-cap funds, 10.2% of mid-cap funds, and 9.8% of small-cap offerings were able to hang onto their top-quartile ranking over three consecutive 12-month periods.  Over the same time period, 32.2% of large-cap, 27.3% of mid-cap, and 25.7% of small-cap funds consistently maintained a top half ranking.

“When we viewed consecutive 12-month performance or non-overlapping cumulative periods, consistent top performers all had experienced management teams with tenure higher than their peers,” said Rosanne Pane, mutual fund strategist at Standard & Poor’s, in the news release.  “Experienced management teams can successfully maneuver their funds through a variety of market environments.” 

Fourth-quartile funds had a higher probability of disappearing.  The three-year transition matrix noted that 26.5% of large-cap, 26.5% of mid-cap, and 29.6% of small-cap fourth-quartile funds went away due to mergers or liquidations.  A large percentage of fourth quartile funds that survived still remained in the bottom half (38.7% of large-cap, 29.4% of mid-cap, and 38.0% of small-cap). 

More information is  here .