Managed fund outperformance rarely lasts for more than a few years before it "peters out", according to research conducted by van Eyk.
As a result, people who invest in a fund because it is outperforming are likely to end up disappointed, van Eyk head of asset consulting Jonathan Ramsay said.
The research is based on a list of core, style-neutral Australian equity funds that outperformed the Australian equity market by at least 5 per cent per annum at some point in the past five years.
Only 10 funds met van Eyk's performance standard, and all of them went on to have long periods of underperformance or, at best, delivered market returns, according to Ramsay.
Similar studies on persistency in fund performance tended to be flawed because they used an average measure of performance or were highly dependent on the time horizon chosen, he said.
"We took a closer look at whether any individual managers had actually provided persistently strong outperformance or whether they had just managed to catch a market wave – a wave which inevitably subsides," Ramsay said.
The outperformance of funds is episodic, and the skill of investment managers and their investment process should not be the only factors that guide investors' decisions, he said.
"Stock selection doesn't happen in a vacuum, and having a view about the market and the interaction between that and a manager's investment process is very important," Ramsay said.
The best fund managers are able to avoid underperforming when markets are subdued, and can catch the next 'wave when it comes along, he added.
