Survival of the fittest? Investment Fund Analysis

Posted by: Swindells FP, on February 27, 2013.

Survivorship bias is one of the most common and momentous flaws in investment fund analysis. Previously ignored by the investment industry and the majority of financial advisers, it can lead to significant distortions in historic performance figures and poor decision making thereafter.

Survivorship bias occurs when an analyst calculates the performance results of a group of investment funds or shares using only the survivors at the end of the period (click on the diagram below).

 Survivorship bias

Why does it matter?

Because fund closures are often a result of underperformance, survivorship bias tends to distort the data in only one direction, making the results seem better than they actually are. Recent research from Vanguard looking at investment fund returns all around the world over shorter (5 years) and longer (15 years) time periods evidences how significant this effect can be.


If you or your adviser are using historical fund performance data to try and cherry pick the “best” funds to invest in, it is vital to understand how any performance data has been calculated. If the performance numbers haven’t been adjusted for survivorship bias, which is unlikely, then they are highly likely to look far better than they really are. Additionally, historic performance is not always a good indicator of future results!

Swindells Financial Planning, independent financial advisers based in Seaford & Uckfield, Sussex are expert investment advisers.  If you have any questions over your existing investments or would like to review their continuing suitability then please do not hesitate to contact us using the form below or call us on 01323 894 202.


Enter your email

Get free investment, pensions and wealth management news and advice.

* indicates required

*We will never share your details with any third party.


Client Stories

Book a consultation

Your Name (required)

Email (required)

Phone Number


Employment Status


What you would like to talk about?


Enter exactly what you see above

Enter your email to receive free relevant news and updates.

* indicates required

*We will never share your details with any third party.

Latest… View all

Putting the current stock market decline in context

There’s no doubt hyperbolic headlines depicting the recent falls on the world’s financial markets are potentially anxiety-inducing. With the FTSE 100 Index falling to its lowest level since April 2017, the effect of the headlines is to promote a sense of uneasiness; we’re here to remind you that this shouldn’t be the case. Instead of […]

Read more →

Inheritance Tax is an avoidable tax

It is often said that Inheritance Tax is an avoidable tax, but many of us somehow fail to avoid it. Why is this? In our experience, clients’ failure to plan effectively is a result of the following perceived problems: Speed – How often will the thought of having to survive 7 years from the date […]

Read more →

What went wrong with the forecasts?

Reading the tea leaves Investors at year-end are inclined to reflect on the 12 months gone and muse on what the coming year might bring. Aware of this appetite for speculation, themedia tends to feed it with forecasts. These articles can be fun to read, but are even more so a year later. In January […]

Read more →

What should investors make of bitcoin mania?

Bitcoin and other cryptocurrencies are receiving intense media coverage, prompting many investors to wonder whether these new types of electronic money deserve a place in their portfolios. Cryptocurrencies such as bitcoin emerged only in the past decade. Unlike traditional money, no paper notes or metal coins are involved. No central bank issues the currency, and […]

Read more →