Can you pick the winning active fund in advance?

A top-quartile fund has beaten at least three-quarters of the funds in its category. That sounds like a useful shopping list. Start with the winners, choose one with an impressive chart, and let its manager keep winning.

The difficult part is the last sentence. A past winner is easy to identify. The investor has to choose a future winner before the future return exists.

The Canada Persistence Scorecard: Year-End 2025 from S&P Dow Jones Indices tests that decision. It is part of the S&P Indices Versus Active (SPIVA) research series. The guide to why active investing falls behind after fees explains the aggregate arithmetic. This report asks a narrower question: do the funds at the top stay there?

One fund remained at the top

The report started with 169 Canada-domiciled active funds across seven equity categories that ranked in the top quartile for the 12 months ending in December 2021. It then followed their category rankings through the next four calendar years.

Only one fund remained in the top quartile every year. It was a global equity fund.

That does not mean the other 168 funds all became bad investments. Some moved into the second quartile, some fell further, and the exercise ranks funds against peers rather than against a market index. It does mean a top-quartile label from one year was a poor way to identify the small group that would stay at the top.

The result was not limited to one-year winners. In a separate comparison of consecutive five-year periods, no more than 25% of the first period's top-quartile funds remained in the top quartile during the next period in any category. Fewer than half of the first period's top-half funds remained in the top half in every category.

The short-term result was less tidy

Persistence was not absent from every measurement. In five of the seven categories, more funds stayed in the top quartile for the next two years than the 6.25% that would be expected if each year's ranking were random. The two Canadian equity categories had no funds accomplish it, while several foreign-equity categories did better.

That counterexample matters. The report does not prove that manager skill is imaginary or that an active fund can never keep winning. It shows that persistence changes by category and measurement period, and that the long-term record gave an investor little basis for assuming a recent leader would remain one.

The report also measures funds, not individual managers. A fund can change its manager, mandate or process. Its peer ranking does not reveal whether it took more risk, held a different type of security, or produced a better result after tax for a particular investor.

Failed funds can disappear from ordinary comparisons

Performance tables can become more flattering when weak funds close or merge into others. An investor looking at today's surviving funds no longer sees every choice that was available five years ago.

The SPIVA persistence methodology keeps track of that attrition. Across consecutive five-year periods, 10.0% of funds that began in the top half were later merged or liquidated, compared with 25.3% of funds that began in the bottom half. Disappearance was much more common among the weaker group.

That is why a clean list of today's five-year winners cannot recreate the decision an investor faced five years earlier. The list has already removed some of the losing choices.

Ask a forward-looking question

The Ontario Securities Commission's investor education site warns that last year's performance does not determine this year's. It recommends comparing a fund with an appropriate benchmark and similar funds, adding up fees, and reading its Fund Facts and other disclosures.

Before buying a recent winner, write down the case without relying on its rank:

• What relevant benchmark should the fund beat after fees?
• Is the same manager using the same mandate and process that produced the historical return?
• Did the fund take risks that make comparison with its peers misleading?
• How large is the additional fee hurdle relative to a comparable index fund?
• What evidence available now, rather than in hindsight, supports continued outperformance?

The Canadian Investment Regulatory Organization notes that return comparisons depend on the period, risk, benchmark, fees and taxes. A star rating or quartile rank cannot answer those questions by itself.

Some active funds will win. The SPIVA persistence report exposes the harder problem: the investor has to find them before their winning returns become the performance chart everyone can see.