Active management's reputation of inconsistent performance is a major factor in the ongoing active vs. passive debate. While 2018 did little to dispel that notion at first glance, the year's volatility has shown some relative improvement. Using September 2016 as the baseline year, of the 550 funds that were in the top quartile over the trailing three-year period, 7.1% of those were still in the top quartile at the end of September 2018. While that number might not be impressive, of that top quartile, only 2.3% were still there at the end of March 2018.
The small-cap universe, which has historically shown more persistence, held on to 7.7% of its top-quartile performers between September 2016same q on year and September 2018 after nearly one-third held a top-quartile position the year before. That number improved from 3.85% at the end of March.
When the distribution is made less granular, small-caps did relatively worse than their peers, generally due to poor small-cap funds being closed more frequently. The broad active fund universe had about a 25% persistency rate of the September 2016 top-half funds at the end of September.