⚠️ When assessing fund performances, the calculation methodology makes a huge difference ⚠️
To calculate the percentage of funds outperforming, SPIVA and Morningstar take into account all funds at the beginning of the selected period.
🔎 For example, let’s take 100 funds at the beginning of a period. During the entire period, 10 funds survive, and 3 outperform. Morningstar and SPIVA, in their reports, calculate that 3% (3/100) outperform over the period. This implies that 97 funds underperform and yet we only know based on the numbers that 7 underperform.
✅ Therefore, it is important to know that 𝐭𝐡𝐞 𝐜𝐚𝐥𝐜𝐮𝐥𝐚𝐭𝐞𝐝 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞𝐬 𝐚𝐫𝐞 𝐛𝐢𝐚𝐬𝐞𝐝 as they are based on the strong 𝐚𝐬𝐬𝐮𝐦𝐩𝐭𝐢𝐨𝐧 that 𝐚𝐥𝐥 𝐟𝐮𝐧𝐝𝐬 𝐧𝐨 𝐥𝐨𝐧𝐠𝐞𝐫 𝐢𝐧 𝐞𝐱𝐢𝐬𝐭𝐞𝐧𝐜𝐞 𝐰𝐞𝐫𝐞 𝐥𝐢𝐪𝐮𝐢𝐝𝐚𝐭𝐞𝐝 𝐝𝐮𝐞 𝐭𝐨 𝐩𝐨𝐨𝐫 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞. And yet, in many cases, funds are liquidated for non-performance reasons such as fund mergers, strategy overlap, manager retirement, lack of scale, share class consolidation…
👉Highlighting this information to investors is key for portfolio construction as it can lead to wrong active-passive allocation decisions.
Marlene Hassine Konqui