Nothing to see here: Survivorship bias

Biases regularly present themselves in investing. Few enjoy their investment journey without suffering from one or more behavioural biases. This short note seeks to highlight the importance of being aware of one of the many cognitive errors we as mere human investors can be exposed to: survivorship bias.

Survivorship bias can lead to a distorted view of the past, as a result of ignoring those investments that didn’t survive the period under review. It is an easy bias for even the most honest of investors to fall foul to. There is no shortage of fund ‘best-buy’ lists provided within the industry (often provided by the platforms on which they want you to invest!). These lists provide a snapshot of funds that are available for sale to investors at the time they go to print, and will likely change over time to continue to offer available solutions. It would be entirely surprising – and not much use at all – for best-buy lists to include funds that are no longer in existence, but given that just half of GBP denominated globally diversified equity funds survived the 10-year period to the end of 2021[1] it is clear that these lists will need to have a large amount of turnover to stay relevant!

Whilst not exclusively the case, generally funds that don’t survive a period are closed for commercial reasons of the management firm. Funds not delivering on promised performance, and funds not gathering scale (or a combination of the two) are likely reasons for closure. A fund management company handing back cash to investors in the event of a complete liquidation can result in unwanted capital gains tax liabilities. The closure of funds that invest in illiquid assets – such as direct property or private debt – can result in lengthy liquidation processes. Mitigating the chance of unexpected surprises like these is central to our ongoing governance process. Analysing the assets a fund has under management, the tenure of the fund, and the fund management firm’s reputation for product proliferation, are examples of considerations by the Millen Capital Investment Committee for the products recommended in our Apex portfolios.

The chart below demonstrates the impact ignoring survivorship bias can have. This cohort of multi-asset fund managers available to UK investors shown on the left-hand figure have, for the most part, delivered strong returns to investors over the past decade. This, however, ignores the over 400 funds of the starting cohort of around 1,000 that didn’t make it to the end of the period. Those funds are illustrated in the bucket on the right.

Data source: Morningstar Direct © All rights reserved. Funds available to UK investors in the Morningstar ‘Allocation’ categories. 627 of the starting 1,040 funds across 97 multi-asset fund managers survived the 10-year period. 413 funds were merged or liquidated.

It is easy to pick past winners based on strong performance, because we are only looking at the cohort that survived. The key is to select a solution that will deliver a good result going forward, and to survive the period (which, as demonstrated above, many fail to). A risk-focused approach to investing and a strong – and regular – ongoing governance process are two ways we at Millen Capital seek to ensure this is the case. Investing is not a set-and-forget process.

Risk warnings

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product.  Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. 

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.


[1] S&P Global, (Mar 16 2022). ‘SPIVA Europe Year-End 2021 Scorecard’, GBP denominated funds in ‘Global Equity’ category