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Why Performance Chasing Persists – Even When the Data Says It Shouldn’t
Last Updated: May 29, 2026
Performance is one of the most visible and widely referenced measures in investing. It plays an important role in how retirement plan committees evaluate and compare investment options.
At the same time, interpreting what recent performance actually signals about future outcomes can be more complex than it appears.
Despite knowing better, it’s still natural for retirement plan committees to gravitate toward funds with strong recent results. Strong performance feels like evidence of skill. Underperformance feels like risk. And in an environment where committees are responsible for selecting and monitoring investments, the pressure to act on that information can be difficult to ignore.
The instinct is understandable. But it can also be misleading.
Why Chasing Performance Feels Right
Recent performance is visible, measurable, and easy to compare. It creates a sense of clarity in what is otherwise a complex decision-making process.
When a manager has outperformed over the past one or two years, it’s tempting to assume that success will continue. Conversely, when a fund has lagged, it can raise concerns about whether something is wrong.
Over time, this can lead to a subtle but important shift in decision making where recent results begin to act as a shortcut for evaluating manager quality.
That shortcut is exactly what we set out to test.
Despite dramatically different trailing results, top- and bottom-quartile U.S. equity funds produced nearly identical average excess returns over the following 24 months.
What the Data Shows
In our Fund Performance Persistence Study, we examined whether funds with strong trailing performance were more likely to outperform again.
We ranked mutual funds within each asset class based on their prior 24-month excess returns and then evaluated how they performed over the following 24 months.
The results were clear:
- • Recent winners did not reliably outperform again
- • U.S. equity showed the weakest persistence
- • Other asset classes showed only modest improvement, not enough to support performance- based selection
Even among top-ranked funds, forward excess returns were inconsistent and, in some cases, negative on average.
In other words, strong past performance was not a dependable indicator of future success.
Why This Matters for Committees
The takeaway is not that performance should be ignored. It remains an important data point.
But the study reinforces that performance alone is not a sufficient decision-making framework.
When committees rely too heavily on recent results, they risk:
- • Replacing managers after periods of underperformance that may be cyclical or expected
- • Selecting new managers at the peak of their relative performance
- • Introducing unnecessary turnover into the investment lineup
Over time, these patterns can work against long-term outcomes rather than improve them.
A More Disciplined Approach
If recent performance is an unreliable shortcut, the question becomes: what should take its place?
A more effective approach focuses on the underlying drivers of long-term results, including:
- • The strength and repeatability of the investment process
- • The experience and stability of the investment team
- • Fee structure relative to the role being served
- • Consistency of the strategy with its stated mandate
- • The role the investment plays within the broader lineup
These factors are less reactive, but more durable. They provide context for performance rather than allowing performance alone to dictate decisions.
How PCI Approaches the Problem
This perspective is embedded in PCI’s Investment Guiding Principles.
While recent performance naturally draws attention, our evaluation process is designed to look beyond short-term results and focus on the elements that are more predictive of long-term outcomes. That includes a structured review of investment process, fees, mandate adherence, manager experience and alignment, and capacity discipline.
By anchoring decisions in these criteria, we aim to reduce the influence of performance-chasing behavior and support more consistent, thoughtful investment oversight.
Closing Thought
Performance will always be part of the conversation.
But when it becomes the primary driver of decisions, it can lead committees away from the very outcomes they are trying to achieve.
A more disciplined approach doesn’t ignore performance. It simply puts it in the right context.
Want a deeper look at the study?
Download PCI’s Fund Performance Persistence Study summary for additional findings, methodology, and detailed results.
