FSA research confirms that past investment performance provides no guide to future performance
14/08/2000
Retail investors cannot increase their chance of choosing a fund that will perform well in the future by picking one that has performed well in the past, according to research published today by the Financial Services Authority.
The findings, published in an FSA Occasional Paper, hold important conclusions for investors unsure as to the value of past investment performance information when choosing a fund, and for the FSA itself in considering what information to publish in its comparative information tables.
The papers author, Mark Rhodes, said:
There is a large, and growing, body of research both here and in the US, which demonstrates that information on past investment performance would not, in general, be useful to retail investors.
A number of researchers have examined whether past performance repeats. The evidence is that repeat performance, where there is any, is small and short-lived, and is most likely to occur in smaller, poorly performing funds.
In practical terms, this means that investors would not find it useful to examine funds past performance in making investment decisions. It also supports the FSAs indication that its Comparative Information Tables should not include details of past performance.
The Comparative Information Tables will pull together information about financial products for consumers to help them shop around and get a better deal. The tables will be set within a broader consumer education context, helping consumers understand the factors they need to take into account when thinking about buying a financial product.
Work is now going ahead on preparing tables covering personal pensions, investment bonds, unit trust ISAs, savings endowments and mortgages endowments, due to be published mid-2001. The FSA will consider how it might further develop the Comparative Information Tables.
Notes for editors
- The FSAs Occasional Paper Past Imperfect? The performance of UK equity managed funds is available from the FSA Publications Department and the FSA website.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.
- The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.
Appended information
This Occasional paper is available from the publications section of our web site. The direct URL is http://www.fsa.gov.uk/pubs/occpapers/op09.pdf.