Article: Consistently Outperforming Managers Deliver the Goods but Don’t Attract Most of the Assets

Jeffrey Stenhouse, Damian Handzy | November 3, 2021

Manager skill is often assessed by examining the consistency with which they outperform the market: even poor managers may get lucky every once in a while, but consistent outperformance requires skill. Following this logic, we examined 308 global equity funds with a 5-year track record, grouping them into three cohorts based on the fraction of months they outperformed the market over the past five years.  The ‘low-consistency’ cohort beat the markets 20% to 40% of the months and is made of 55 managers. 193 managers made the ‘medium-consistency’ cohort by beating the markets 40% to 60% of the months, and 60 managers made the ‘high-consistency’ cohort by beating the markets 60% to 80% of the months.

We uncovered that the highly consistent managers deliver much more than less consistent managers:

  • Highly consistent managers delivered 5% more excess return but took only 0.5% more risk than the medium consistency managers,
  • The median excess return of highly consistent managers is better than 95% of the returns of the medium consistency cohort,

But this same cohort of highly consistent managers attracted less than half the number of assets as the medium-consistency managers over the past five years.

Each member of the three cohorts is represented in Figure 1, showing that the high-consistency managers (dark blue dots towards the top) deliver the highest overall returns while taking the largest amount of risk. The red dot in the center of the crosshairs shows the MSCI World index.

Figure 1: Annualized 5-year outperformance (vertical axis) versus standard deviation (horizontal) grouped into the three cohorts described in the text. Source: Investment Metrics.

We note several conclusions about the risk-return profiles of these managers:

  • The low-consistency (and low-returning) cohort takes the least amount of risk while the high-consistency (and most out-performing) cohort takes the most risk
  • The shape of each cohort is revealing: only the high-consistency cohort shows signs of an efficient frontier in which higher returns are achievable with higher risk. The low-consistency and medium-consistency cohorts do not demonstrate a systematic increase in returns for taking on more risk.
  • Within the high-consistency cohort, it is possible to take less risk than the market and still outperform by as much as about 5% per annum. But only funds that take significantly more risk outperform by more than that.
  • All low-risk managers (those with standard deviation under about 13%) failed to outperform the market by more than 2% to 3%.

We next looked at the inter-quartile range of returns of the managers in each cohort over the past year, 3-years and 5-years, as shown in Figure 2. While the past year shows only modest differences between the cohorts, the story is very different over the longer timeframes.

The most striking difference is that the median high-consistency manager does better than 95% of all the managers in the medium cohort. Further, the top managers in the highest quartile of the medium cohort is competitive, from a returns perspective, with only the lowest quartile of managers in the high-consistency cohort. There is virtually no overlap between those two distributions.

Figure 2: Excess return of each quartile within the three cohorts for the past year, 3-years and 5-years. We cut off the top and bottom 5% to remove outliers (the top quartile is actually the top 75% to 95%). Source: Investment Metrics.

There is a strong Style bias within these cohorts: 78% of the high-consistency cohort is made of Growth funds with the remainder being Core funds (no Value funds were in the high-consistency cohort). The majority (57%) of the medium-consistency cohort is made of Core funds, with Value making up 29% of that cohort. Viewed the other way around, about 2/3 of all Value funds fell into the medium-consistency cohort and 1/3 fell into the low-consistency cohort while about 60% of growth funds fell into the high-consistency cohort and 70% of core funds fell into the medium-consistency cohort.

Over the past five years, the medium-consistency cohort gained more than twice the assets of the high-consistency funds, with one star portfolio manager, GQG, receiving about 10% of the $122B awarded to the medium-consistency cohort. Figure 3 shows the breakdown of assets gained by cohort and investment style. 

Figure 3: Assets gained over the past five years by consistency cohort and by investment style. The medium cohort gained more than twice the assets of the high-consistency group. Source: Investment Metrics.

Over the past five years, only 19% of the managers were able to outperform the market 60% of the time, and the most consistent of them, Sands Capital Management, outperformed the markets 71% of the time. The top 5 most consistent managers are listed in the table below, all of which are Growth funds:


  • Managers who consistently beat the market not only provide higher average returns, they do so with just a modest amount of additional risk.
  • The least successful of the high-consistency managers still beat 95% of the medium-consistency mangers.
  • Low-consistency and medium-consistency managers do not generate higher returns for more taking on more risk: investors systematically only earn more returns for higher risk with high-consistency managers. This is unexpected.
  • Despite the clear performance and risk benefits of the high-consistency cohort, the medium-consistency cohort gained twice as many assets over the past five years.


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