Why top Australian share funds are disappearing
Managers regularly launch new funds. But they also close them or take them off the performance tables.
Seven of the top 10 Australian share funds in 1995 have disappeared some 20 years on, according to the annual Mercer Fund Survey.
The three survivors are Colonial First State Australian Share Growth (No. 1 in 1995 and 32 in 2015), Maple-Brown Abbott Australian Shares (No. 2 and 148) and Antares Australian Equities Core (No. 5 and 126).
There are several reasons why the top managed funds of yesteryear disappear. First, many firms change name and ownership over time.
When a team leaves en masse the parent may stumble for a while, and often a substantial part of the funds under management will flow to the new setup. The original parent may then fade.
Second, when an investment team's performance declines over time, the team can fragment as clients leave seeking better results elsewhere.
Third, investment managers often run several equity strategies. For example, a manager may run a high-conviction variant of its normal equity strategy. Over time the less successful strategies may be closed when their performance burst fades.
Another reason managers disappear is that when performance deteriorates they may decide not to submit their returns to the surveys, even though the fund is still open. There is no point in getting bad publicity.
In the case of a fund closing down, the manager takes the drastic step of winding it up and giving investors their money.
When looking at manager performance over time, a current survey will often give a rosier-than-warranted perspective on long-term performance because it only includes the survivors. It doesn't include the typically weaker performance of the casualties. This more favourable result is called "survivorship bias".