Good past performance ‘carries forward’ says IMA

UK - UK equity funds with top quartile past performance are more likely to perform well in the future, according to research commissioned by the Investment Management Association, (IMA).

As part of the study, economic consultants Charles River Associates, assessed over 940 funds from four UK equity sectors for performance persistence for the time period of one to seven years over the 21-year period 1981 to 2001 inclusive.

Results showed that selecting a fund with top quartile past performance gave a better than 25% chance of future top quartile performance. Similarly selecting a fund with bottom quartile performance gave a better than 25% chance of future bottom quartile performance.

Says Richard Saunders, chief executive of the IMA: "these number do not show that picking last year’s winner guarantees you out-performance next year. But they do suggest that, on average, past performance relative to peer group has a tendency to carry forward into the future, for both strong and weak performance. Thus, although past performance should never be the sole reason for choosing an investment fund, it cannot be ignored."

The IMA is calling on the Financial Services Authority to introduce a standard forma for the presentation of past performance data in marketing material and to add past performance figures to its web-based comparative tables.

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