Trying to pick the long-term winners among European funds could be a gamble. Sustained outperformance of European funds is “extremely rare”, according to Morningstar’s research, with investors gaining more by avoiding laggards than tracking future winners.
Covering nearly 11,500 European funds over a 15-year period, the study analysed fund performance persistence across equity and fixed income strategies and found that only a small minority of funds consistently remained among the strongest performers over time.
Among roughly 6,000 funds in the sample as of 2022, just 35 remained in the top performance quintile every year between 2022 and 2025. The findings suggest that short-term success offers little indication of future results, with performance persistence weakening as the time horizon lengthens.
Poor-performing funds were more likely to remain in the bottom tier or be closed than to recover, showing that underperformance tends to be more persistent than strong performance.
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Lower-cost funds were more likely to sustain stronger performance over time, while higher-cost funds were more likely to remain among the weakest performers, the study found.
Apparent performance persistence was often linked to exposure to risk factors such as momentum in equities and higher-yield credit exposure in fixed income, rather than repeatable stock-picking or manager skill. Volatile market periods further reduced the likelihood that top-performing funds would maintain their advantage.
Eugene Gorbatikov, analyst and manager of research at Morningstar, said: “What looks like consistency is often better explained by exposure to certain types of risk, such as momentum in equities or higher-yielding bonds in fixed income, rather than repeatable manager skill. That doesn’t mean manager skill doesn’t exist, but it can be difficult to identify and maintain.
For investors, the more practical takeaway is to focus less on picking winners and more on avoiding persistent underperformers, while paying close attention to costs. Fees remain one of the most reliable predictors of long-term outcomes, and keeping them low can materially improve the odds of success.”
