As the fine print reminds us time and again, past performance is not an indication of future results. But institutional and retail investors usually focus heavily on recent performance in selecting a manager or mutual fund selection. Few pension trustees, investment officers, or their consultants seem to measure a prospective manager’s capital asset pricing model (CAPM) or Fama–French alpha, or other performance measures in making hiring and firing decisions. Thus, investors seem to expect that the kind of outperformance they value from a manager persists over time and leads to future outperformance against the same benchmark.

Authors Bradford Cornell, Jason Hsu, and David Nanigian found evidence to contradict this assumption. In their article Does Past Performance Matter in Investment Manager Selection? published in the Summer 2017 issue of The Journal of Portfolio Management, they find that the investment manager selection methodology commonly employed by industry practitioners turns out, in fact, to be a detriment to performance, and selecting losers can provide significantly better results than selecting winners.