Quartile performance driver prevails in shorter periods, Lipper finds
Funds with first quartile performance attracted the greatest inflows to UK funds, and performance driver prevailed particularly for 1- and 3-year periods, according to research by Lipper on the correlation between funds’ returns and sales.
While the importance of a fund’s first quartile performance is undeniable, Lipper found that the relationship deteriorated for 5-year returns and even further for 10-year returns.
“For funds with second quartile performance, inflows are most likely with rolling 1-year returns, but their average flows are negative for 3-, 5- and 10- year rolling returns. So “tough love” looks generally to be shown to those funds that drop out of the first quartile,” Lipper said.
Sales per IMA sector average £173m for funds with first quartile performance over 1-year periods, while second quartile performance generates average sales per sector of £13m over 1-year periods.
Funds with mixed investment 20-60% in shares sector generated inflows for poorer performers, where even over 10- year periods lower quartile funds fared relatively well in sales terms, compared to the other sectors assessed.
In the Sterling Corporate Bond sector, Lipper found taht on average second quartile funds have inflows through 1-, 3- and even 5-year rolling periods.
“This suggests that managers who were most favoured between the fourth quarter of 2008 to the third quarter of 2009 were those with at least 10 years experience,” Lipper said.
Finally, equity funds have largely been out of favour since 2007, with first quartile funds in the UK All Companies sector struggling to attract inflows.
“This research suggests that some investors are taking advantage of a manager’s “winning streak” or, more precisely, the short-term persistence in fund performance,” said Ed Moisson (pictured), Lipper’s head of UK Research.
He added: “These findings do not mean that a fund manager has to be short-termist, but the sales patterns identified put pressure on a manager’s recent track record if a fund wants to achieve significant inflows.”