Report and magnifying glass

Lipper report looks at relationship between fund performance and sales

A report from Lipper examines the relationship between fund performance and net sales in the UK, and while it is not a surprise to discover that funds with first quartile performance attract the greatest inflows, the report investigates how this relationship changes over time, sector and quartile. 

The importance of a fund’s first quartile performance is undeniable. The dominance of first quartile performance in driving sales prevails, particularly for one- and three-year periods, while this relationship deteriorates for five-year returns and even further for 10-year returns.
 
For funds with second quartile performance, inflows are most likely with rolling one-year returns, but their average flows are negative for three-, five- and 10- year rolling returns. So “tough love” looks generally to be shown to those funds that drop out of the first quartile.
 
Sales per IMA sector average GBP173m for funds with first quartile performance over one-year periods, while second quartile performance generates average sales per sector of GBP13m (over one-year periods).
 
Sector findings include success for funds in the Mixed Investment 20 to 60 per cent Shares sector in generating 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 it is interesting to see that, on average, second quartile funds have inflows through one, three and even five-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.
 
Equity funds have largely been out of favour since 2007, with first quartile funds in the UK All Companies sector struggling to attract inflows. First quartile performance here looks to serve more of a defensive purpose – stemming outflows rather than generating inflows.
 
Ed Moisson, Lipper’s head of UK research, says: “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.
 
“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.”

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