Europe Persistence Scorecard



The Europe Persistence Scorecard aims to differentiate skill from luck by examining the ability of active European equity funds to consistently outperform their peers and their benchmark. This scorecard looks to support the well-known disclaimer that past performance is not indicative of future results and that oftentimes an investor may have better success in selecting a fund at random rather than from a group of top performers.

In this report, we pose two questions: did top funds stay ahead of the pack, and did outperforming funds continue to beat their benchmark?


Pan-European Equity Funds:Looking at the two-year period since the COVID-19 pandemic started, 52% of the top-quartile Europe Equity funds at the start of 2020 were able to remain in the same category by the end of the same year. By the end of 2021, over 21% of these same starting funds were still in the top quartile. This figure is far higher than what would be expected through choosing a fund at random (6.25%). This short-term persistence was not unique to Europe Equity over this period; across all fund categories, at least 6.25% of funds remained in the top quartile for three consecutive years.

While top-quartile funds may have demonstrated a better chance of repeating their relative success over this most recent period, it seems that may not have necessarily translated to outperformance when compared with their benchmarks. To avoid the risk of drawing conclusions from a single time period, Report 8 analyzes the persistence of outperformance on average over rolling quarters. Europe Equity funds that had beaten the benchmark in any rolling three-year window over the period analyzed had a 44.4% probability of outperforming in the subsequent year. The probability of the same funds outperforming for three consecutive years following their initial success dropped to 7.2%.

Report 5 indicates that there may also have been some predictability when it comes to bottom-quartile funds; the report shows that 62% of Europe Equity funds in the bottom quartile either remained there or ceased to exist over the subsequent five years. In fact, in all fund categories, fourth-quartile active funds were more likely to remain relatively poor performers, with fewer than 10% able to turn their fortunes around and become first-quartile funds.



Other Equity Funds in Europe: As Exhibit 1 highlights, U.S. Equity funds demonstrated the most notable short-term persistence over the first four years. However, this drops off significantly in the fifth year, when only 1.4% managed to remain in the top quartile, only slightly better than if a fund were selected at random (0.4% probability).

Similarly, top-half U.S. Equity funds showed the strongest signs of persistence when compared to the other fund categories over five consecutive 12-month periods. After four years, 32.6% of funds remained in the top half, over 20% higher than would have been expected from a random draw.

Report 8 also highlights how difficult it has been for U.S. Equity fund managers to beat the benchmark. On average, only 8% of funds were able to beat the S&P 500® over any initial three-year period. However, the resulting percentage of funds outperforming in the following three one-year periods is higher than in other categories, with 19.5% continuing to outperform the benchmark across the consecutive periods.


The phrase “past performance is no guarantee of future results” (or some variation thereof) can be found in the fine print of most mutual fund literature. Yet, many investors and advisors consider past performance and related metrics to be important factors in fund selection. So, does past performance really matter?

To answer this question, Reports 1-6 track the degree to which historical relative performance is predictive of future relative performance. The scorecard highlights performance persistence over three and five consecutive 12-month periods and two non-overlapping three- and five-year periods.

Reports 7,8 and 9 showcase the degree to which outperforming funds from one period continue to beat their benchmarks thereafter. Specifically, we first identify funds that beat their benchmarks, based on three-year annualized returns. We then examine whether these funds (the “winners”) can continue to outperform during each of the following three one-year periods.

Report 8 covers the period from Dec. 31, 2011, to Dec. 31, 2021. On a quarterly basis beginning on Dec. 31, 2011, we compute the trailing three-year annualized returns for each fund in our universe, as well as for their benchmarks. We then identify funds that beat their benchmarks and track their relative performance in each of the next three years. Quarterly results are then averaged to arrive at the final report. By identifying funds that beat their benchmarks as “winners” and those that do not as “losers,” this approach applies the “winner-winner, winner-loser” methodology developed by Brown and Goetzmann and examines if winners in period t are also winners in t + j, where j = Year 1, Year 2, and Year 3.

Key features of the S&P Persistence Scorecard include:

• Historical rankings without survivorship bias: For anyone making an investment decision, all funds available at the time of that decision are part of the initial opportunity set. Ignoring funds that liquidate or merge during a period of study biases measurements of persistence. The S&P Persistence Scorecard ranks all funds available at each point in time and tracks the top-quartile and top-half performers throughout the time.

• Clean universe: The fund universe used in these reports comprises actively managed domestic European equity funds. Index funds and leveraged funds are excluded from the sample. To avoid double counting multiple share classes, only the share class with the highest previous period return of each fund is used.

• Tracking reports of top performers: The tracking reports show the percentages of funds that remain in the top-quartile or top-half rankings over consecutive three- and five-year periods.

• Transition matrices: Transition matrices show the movements between quartiles and halves over non-overlapping three- and five-year periods. They also track the percentage of funds that have merged or liquidated.

As in our widely followed SPIVA Europe Scorecards, Morningstar serves as our underlying data source.