Just five of the 455 European equity funds with assets under management of at least €100m and a minimum track record of three years have generated top-quartile returns in every one-year period from 1 April 2013 to 31 March 2016. Tanja Wennonen-Kärnä, a senior portfolio manager at the Finnish private bank Evli, is surprised that just 1.1% of European equity funds have managed to finish top-quartile over the past three years.
In fact, the 1.1% figure is even lower than the laws of probability would predict. This is also the case for the number of consistent top-half performers. Probability tells us 12.5% of funds, or 57 in our sample, should manage this. However, in real life only 40 funds, or 8.8% of the total, have secured a top-half finish for three years in a row.
“This is quite a shocking number indeed,” she says. “I would have expected a figure more in the region of 10%.”
Luck or skill?
However, this shouldn’t make us conclude that the select few managers that manage to consistently outperform owe this to mere luck. After all, the chance that they would have managed to build such a track record without any skill is rather low: 1.56% to be precise.
Tomorrow we’ll reveal the top performers among the European equity funds. How well did these top funds actually do, and do they have anything in common that might have fostered their success? You’ll see it tomorrow.