The results reveal a striking gap between a small group of well-performing, attractive funds (five-star rated funds make up less than 10% of available funds with at least a three-year track record) and the rest, which are mainly losing assets. Even the difference between five-star and four-star rated funds is remarkable, as the latter recorded only a fraction of the net inflows of the former. Funds with a three-star rating had a particularly bad year, with €31bn in net outflows in the ten months to November.
Track record focus
The strong emphasis on a small group of top-rated funds reveals a very strong reliance on the track record. Moreover, fund selectors seem to go for the same funds which points towards one of the main biases overreliance on the track record can lead to: the herd instinct. Read more about the drawbacks and the advantages of using the track record as a fund selection instrument here.