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This study uses a survivorship-bias free dataset spanning more than 80 years to identify the best mutual fund managers having tenure of ten years or more. We also examine the relationship between performance and tenure in a sample of 289 solo managers of 355 actively managed funds within the nine Morningstar styles. We find an inverse relationship between average annual returns and tenure, even after controlling for structural changes in mutual fund returns after 1996. The managers who survived more than ten years were likely to have performed at or above the market in their first three years, while their peers who did not survive as solo managers beyond three years significantly underperformed the market. Finally, while each of the very best managers generated positive compound annual market-adjusted returns following their first three years, the majority were not able to maintain their early levels of performance. This evidence is not indicative of a positive relationship between experience and performance.
*The investing public is inundated with mutual fund advertisements stressing the long-term performance of their fund and in many cases, the value of their managers and the importance of experience. While extensive public information is available about the performance of current actively managed mutual funds, little has been written about the historical performance of all managers, including those who are no longer actively managing funds. One might argue that once a fund manager becomes inactive, the investing community is no longer interested in their performance. However, current managers and the investing public need a historical benchmark with which to evaluate long-term performance. For example, a manager may be in the top quartile of all active managers for the last 10 years, but a complete comparison lies in measuring historical performance relative to all managers with 10-year track records. The purpose of this study is to provide a historical scorecard of the performance of solo mutual fund managers through 2008, and to examine the relationship between experience and performance among them.1
Numerous studies have examined the performance of mutual funds and addressed the question of whether mutual funds can out-perform the market on a risk-adjusted basis. While there is overwhelming evidence that actively-managed mutual funds, in general, do not outperform the market after accounting for...