Slow and Steady Wins the Race : The Impact of Chasing Returns on Quartile Rankings

This paper explores whether passive fund managers who aim to be in the 1^st quartile by chasing higher returns (i.e. higher risk) are more likely to achieve their goal compared with those that chase somewhat lesser returns (i.e. lower risk). Using monthly historical returns from 01/01/1979 to 01/01/2018, we show that if a fund's goal is to achieve higher assets under management (AUM), it should aim to be in the 1^st quartile every year. However, if a fund's long-term goal is to stay in the 1^st quartile, it should aim to be in the 2^nd quartile every year