Back in 1960, the Financial Analyst Journal ran a paper by a financier called John B. Armstrong lambasting research that implied most fund managers did a bad job, and mocking the suggestion that simply buying the whole stock market might be better.

To do so, The Case for Mutual Fund Management examined the results of the four biggest equity mutual funds in America -- showing how they had easily beaten the Dow Jones Industrial Average between 1930 and 1959 -- and concluded:

It is clear that even the most assiduous analysis of yesterday's figures cannot foretell what tomorrow may bring -- whether the problem is selecting a mutual fund or an individual investment, or forecasting the action of the stock market, or indeed of predicting any event dependent upon the human element. However, the Financial Analyst -- and the mutual fund shareholder -- can gain confidence from the fact that mutual funds in general have met the test of time, and performed in keeping with their stated policies and goals.

As it turned out, John B. Armstrong was a pseudonym for Jack Bogle, then the president of Wellington, one of the oldest and biggest US mutual fund groups. And as you probably know, Bogle would go on to found Vanguard, the passive investing behemoth.

In fact, when he was arguing with Vanguard's board to let him set up the group's very first index fund -- today's $1.3tn Vanguard 500 -- Bogle basically redid the exact same mathematical work as he had done under his Armstrong pen name. But this time he didn't cherry-pick the data and the benchmark, and came up with very different results. As Bogle recalled in his autobiography:

The average annual return of the S&P 500 Index was 11.3% versus 9.7% for the average equity fund, an annual advantage of 1.6 percentage points per year for indexing. Here was hard statistical evidence -- "brute evidence," if you will -- of the superiority of the returns of the passive index over active funds.

This anecdote came to mind when reading a recent (ish) report by the investment Adviser Association on why S&P Dow Jones Indices' so-called Persistence Scorecard deserved "short thrift" (HT former S&PDJI CEO Alex Matturri):

It's time to stop and ask a fundamental question: does the Persistence Scorecard add value for investors?

The answer is "no."

What is this Persistence Scorecard? It's an annual report compiled by S&P Dow Jones Indices -- one of the financial benchmarking world's "Big Three" alongside FTSE Russell and MSCI -- and less well known cousin of the index company's active-vs-passive SPIVA Scorecard.

While SPIVA regularly measures the proportion of funds that outperform the market in any given year or time period, the Persistence Scorecard tries to measure whether historical outperformance is predictive of future outperformance, by looking at whether funds with top-quartile returns stay there.

The latest report indicates that of not a single one of the top-quartile funds as of 2020 remains in the top quartile by the end of 2024. Even random chance would suggest that at least one would, but no.

However, the IAA is unhappy with S&P DJI's methodology because "long-term performance matters, not short-term persistence":

The funds with the best returns over the long term almost all experience shorter periods of underperformance.

To illustrate, we looked at the performance of the 170+ actively managed large-cap blend funds (both open-end and exchange-traded) with 20-year track records as of the end of July 2025. We used the lowest-cost share class to develop this list. We then zeroed in on the 25 funds with the best performance history.

These 25 funds have done a great job for shareholders. An investor putting $1,000 into these funds 20 years ago would have somewhat over $8,500 in their account after holding them for 20 years, an annual return of 11.3%. By contrast, investors in the S&P 500 would have earned only 10.7% per year, ending up with over $7,500 after 20 years.

However, while these funds generated outstanding results over the long haul, results varied quite a bit over the short term. In fact, these funds were almost as likely to underperform as they were to outperform; on average, they trailed the S&P 500 in 9 of the 20 years. Even top-ranked funds have periods at the bottom.

Look, it's completely true that investors shouldn't only invest in fund managers that have never had a down year, or to ditch one just because of a bad spell. That would be mad. If you want to do better than average you by definition have to do something different from everyone else. That can lead to periods where you look like a dunce.

Investors lose out on a lot of returns because they constantly churn fund managers that have performed badly in favour of the hot new kid on the block. That old story about the best investors at Fidelity being the dead ones is apparently wrong, but it persists because it contains the kernel of an important truth: investor hyperactivity does a lot of financial self-harm.

However, the IAA's work here is a bit silly to begin with, and they then try to build a comically dumb conclusion on top of the resulting truism.

The IAA's methodology is a bit like selecting the 25 highest-scoring strikers in the world today, noticing that they don't score in every game and triumphantly declaring that you should you never lose faith in your own club's misfiring striker, even if you don't actually know whether he's a future star or donkey.

The point of the Persistence Scorecard is simply to try to differentiate skill from luck, and to warn investors against relying too much on past performance. A fund manager can get lucky for a year or two thanks to just one massive risky bet. Sometimes that turns out to be GEICO, and other times that's Sears.

The IAA says that "actively managed funds don't need year after year outperformance to generate long-term value for investors". Which is completely true, but beside the point. Because . . .

Even the 25 best-performing funds selected by the IAA to make its point only managed to beat the S&P 500 by 60 basis points a year over the past 20 years! Sure, that can add up over two decades, but really isn't much to brag about.

Moreover, these were selected from the roughly 170 large-cap US equity funds that have a record of at least 20 years. This is already a pretty self-selecting pool of success stories, as roughly two-thirds of all US investment funds that existed 20 years ago have folded since then. We're not even told whether the IAA data is asset weighted, to see if its own already weak findings are also skewed by a handful of tiny unrepresentative funds. This is simply blatant data mining.

So what does the average active US equity fund performance look like, once you adjust for the survivorship bias? Well, this may shock you to your very core but . . .

This is the latest mid-year SPIVA Scorecard for US fund managers (zoomable version of the image here, and here's the full report). Things aren't any better in Europe either, in case you were curious, though S&P DJI only does 10-year performance data in the region.

The IAA is narrowly correct in saying that people shouldn't obsess about the Persistence Scorecard. But no one is.

A quick FT search reveals just two mentions since our web archives began. A search of the WSJ yields all of eight mentions -- and several of them stress that persistence is not actually that important to overall long term returns. Sure, there will be some other oblique mentions that don't explicitly mention the "persistence scorecard", but this simply isn't the major report that the IAA pretends.

Alphaville is admittedly committing a similar sin, by spending more words making fun of an anonymous bit of pro-active marketing than the original report contained. But this report was just really annoying.

The IAA has done a grossly data mined non-debunking of a little-followed report, and has heavily implied that this somehow strengthens the case for active management as a whole. We're going to out on a limb and predict that this isn't going to turn back the passive tide.

Debunking the 'Persistence Scorecard' debunking