Characterising persistence of performance amongst South African general equity unit trusts

This study analyses the relative performance of general equity unit trusts from 1980 to 1999 using a database that has been verified for accuracy and is free of survivorship bias. It characterises the behaviour of performance persistence in order to explain the conflicting results of previous persistence studies. A positive but weak relationship was found between past and future performance rankings. As the holding period lengthens, the persistence results became more sensitive to the beginning date and ending date of the period under examination. Regardless of the ending date chosen, persistence of winning funds and losing funds was evident when holding periods of 6 months were used. Persistence was particularly evident during the 1995–1999 period. However, even in this period, there were situations where rankings from one holding period to the next appeared random and situations where rankings reversed. Although individual unit trusts did not perform consistently over multiple holding periods, when using a trading strategy of buying the top performing fund over the last 6 months and holding it for 6 months, it was shown that, in most cases, an investor would have earned a return over 5 years that beat the average return of all general equity unit trusts after taking switching costs into account.