2007 August - USB Leaders' Lab Magazine

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The fund performance illusion
(Stellenbosch : University of Stellenbosch Business School, 2007-08) Wessels, Daniel; Kriger, Niel
Research conducted at the University of Stellenbosch Business School into the long-term performance of equity fund managers found that past performance was not a reliable indicator of future performance. The study links up with the trends revealed by previous international and local studies and found relative persistence in yields in the short term, but short-term results did not have long-term predictive value. The longer the investigation period, the more the performances would adopt a random up-and-down movement. The clear message from the research is a warning to investors. Do not put your trust in one active manager only. In the long run, a particular fund’s performance may deviate substantially from its recent track record. The study thus exposes the danger of accepting current performance as the sole predictor of future performance and suggests, especially for longer-term investments, that investors must become better acquainted with the investment philosophies and decision strategies of fund managers before making investments.