The fund performance illusion

Research conducted at the \nUniversity of Stellenbosch \nBusiness School into the \nlong-term performance of \nequity fund managers found that past \nperformance was not a reliable indicator \nof future performance. The study links \nup with the trends revealed by previous \ninternational and local studies and \nfound relative persistence in yields in \nthe short term, but short-term results \ndid not have long-term predictive value. \nThe longer the investigation period, the \nmore the performances would adopt a \nrandom up-and-down movement. \nThe clear message from the research \nis a warning to investors. Do not put your \ntrust in one active manager only. In the long run, a particular fund’s performance \nmay deviate substantially from its recent \ntrack record. The study thus exposes the \ndanger of accepting current performance \nas the sole predictor of future \nperformance and suggests, especially \nfor longer-term investments, that investors \nmust become better acquainted \nwith the investment philosophies and \ndecision strategies of fund managers \nbefore making investments.