For Funds, Repeat Success Rare

(MXXIX Quote)Marisco 21st Century (MXXIX) headed the list of large-cap funds, returning an annualized 15.83%. Of the mid-caps, (FLVCX Quote)Fidelity Leveraged Co Stock (FLVCX) stood nearly 10 percentage points higher than its closest peer with a 27.08% five-year annualized return, while (PRCGX Quote)Perritt Capital Growth (PRCGX) achieved a return of 20.15% over the period, the best by a small-cap fund.

Staying in the top quartile proved even more difficult, as only eight large-cap stock funds, or 3% of the total, made the cut. Only two mid-cap stock funds, or 2.5%, and zero small-cap stock funds retained this distinction.

"Very few funds repeat a top-quartile performance," S&P index strategist Srikant Dash said in a press release. "[Our] research shows that a healthy percentage, and in most cases a majority, of top-quartile funds in the future will most likely come from the ranks of prior period second and third quartiles."

Over the long run, returns were slightly more predictable, as 17.3% of large-cap funds in the top quartile during a five-year period ending Dec. 31, 2001, landed in the top quartile over the five years ending Dec. 31, 2006. Only 10.4% of mid-cap funds and 17.7% of small-cap funds landed in the top quartile for the same two five-yyear periods.

The consistency scorecard addresses another drawback to fund rankings: survivorship bias. Fund companies typically liquidate their bottom-ranking offerings to make their overall slate appear stronger.

That means the returns for a class of funds can be overstated if only the survivors are ranked. But S&P's consistency scorecard ranks all of the funds that were in operation during a given period, although the ones that have been either merged or liquidated are clearly identified.

The latest report indicates that funds ranked in the fourth quartile are most at risk. Over the past five years, 43% have disappeared.