Signs of resilience in top-quartile managers
Our research shows that even the best managers have had to bounce back from periods of underperformance. Recently, for example, we used the eVestment database to look at the performance of active managers in the global core equity universe who had at least a trailing 10-year history (331 managers, 2012 – 2021). We evaluated their peer-universe-relative 10-year excess return rank (calculated using the MSCI All-Country World Index) to identify the top-quartile managers over the long term.
As shown in the dark-blue bars in Figure 1, 100% of these top-quartile managers experienced rolling one-year periods during which they lagged the median manager. Ninety-five percent did the same over rolling two-year periods, 82% over rolling three-year periods, 65% over rolling four-year periods, and so on.
We also looked at how much time these top-quartile managers spent among the bottom-quartile of their peers (light-blue bars). Remarkably, 92% of the top-quartile managers in the long term spent at least a year in the bottom quartile, and nearly half were in the bottom quartile over some three-year period. In some cases, three years of bottom-quartile performance is enough to get a manager put on a watch list and fired, even though that’s probably not what you want to do with a manager that will end up in the top quartile.