Shakespeare wrote "uneasy lies the head that wears a crown" about King Henry IV. That description works well for Wall Street fund managers too.
A mere 1% of U.S. equity funds managed to rank among the top 25% for performance for five years in a row, according to a recent report from S&P Dow Jones Indices.
In other words, winning streaks for fund managers are pretty short lived.
"An inverse relationship exists between the measurement time horizon and the ability of top-performing funds to maintain their status," the report's authors noted. "This figure paints a negative picture regarding the lack of long-term persistence in mutual fund returns."
Related: Battle Royale: Active vs passive investing
It's important data for any investor to consider. Afterall, people pay fees to fund managers because they expect them to have extra skills and be able to deliver strong performance over time.
But S&P Dow Jones Indices found a strong likelihood for many of the best-performing funds to become the worst-performing funds in a matter of months.
Many fund managers market their past performance with the implication that the good times will continue. The question investors should be asking is: Are those past gains the result of raw skill or dumb luck?
The report comes as the debate into the virtues of active versus passive investing intensifies. Active funds are run by experts -- some better than others -- who select stocks or bonds for you. They do the work, and get paid fees of around 0.6% and 1% to do so.
Passive funds simply track an index (like the S&P 500) or a basket of companies. It's akin to ordering the pre-fix menu at a restaurant. The price tag is cheaper -- sometimes as low as 0.2%.
Related: Oil is the Federal Reserve's 800-pound gorilla
Since 2006, investors have been yanking money out of active funds and plowing them into passive ones.
Legendary stock picker Warren Buffett has extolled the virtue of passive investing. He wrote in his annual shareholder letter last year that he's advised the trustee of his estate to put 90% of its assets for his wife in a "very low-cost" S&P 500 index fund, because he believes the "long-term results from this policy will be superior to those attained by most investors."
Jeff Weniger, an investment strategist and portfolio manager at BMO Global Asset Management, is also a fan of passive investing, though he believes active managers could soon start to prove their muster once stocks' incredible run finally takes a breather.
Volatility has already been picking up as traders begin to separate good companies from the mundane.
"Everything goes up in a bull market," he said. "There could be a point here when active management starts to differentiate itself."
