Baird Study Questions Reliability Of Past Performance, Offers Strategies For Better Investment Decision Making

Does successful past performance have an inverse relationship to future performance?

A recent study by the Advisory Services Research team at Baird, an international, employee-owned wealth management, capital markets, private equity and asset management firm, finds that portfolio managers who ranked in the lower quintiles over the past five years actually outperformed their higher-ranked peers over the subsequent years on average. Yet, as illustrated by the whitepaper titled “The (Un)Reliability of Past Performance,” positive asset flows generally follow above-average performance and asset outflows follow a streak of poor performance.

Baird’s research confirms the notion of reversion to the mean and warns that it is dangerous to place too much emphasis on past performance, especially short term. “Not every manager follows good performance with bad, but reversion to the mean can be a powerful force and is something to be aware of,” said Tim Byrne, Director of Baird’s Private Wealth Management Research, Products and Services, one of the whitepaper’s authors. “Understanding how a manager achieved performance is as important as the performance itself.”

The whitepaper also examines outperformance by active versus passive managers. Said Aaron Reynolds, Senior Portfolio Analyst and coauthor of the whitepaper, “We are frequently asked whether it is better to use an active manager or a passive one, and our research findings suggest that the answer is, ‘it depends.’ In some periods, active managers have been able to add value with an above-average success rate. In others, benchmarks have been incredibly difficult to beat and active managers have lagged.”

Download the full whitepaper, “The (Un)Reliability of Past Performance.” To interview the study’s authors, Tim Byrne or Aaron Reynolds, contact Jody Lowe or Baird Public Relations.

About Baird
Baird is an employee-owned, international wealth management, capital markets, private equity and asset management firm with offices in the United States, Europe and Asia. Established in 1919, Baird has more than 2,400 associates serving the needs of individual, corporate, institutional and municipal clients. Baird oversees and manages client assets of more than $62 billion. Committed to being a great place to work, Baird ranked number 14 on FORTUNE’s “100 Best Companies to Work For” in 2009 – its sixth consecutive year on the list. Baird’s principal operating subsidiaries are Robert W. Baird & Co. in the United States and Robert W. Baird Group Ltd. in Europe. Baird also has an operating subsidiary in Asia supporting Baird’s private equity operations. For more information, please visit Baird’s Web site at www.rwbaird.com.