Why chasing yesterday’s winners is tomorrow’s wealth destroyer
- Robin Powell
- 2 days ago
- 9 min read
Investors are often tempted to chase yesterday’s winners, drawn in by dazzling past returns and glowing media coverage. But history shows that this behaviour rarely ends well. When money floods into funds at their peak, future performance tends to disappoint, turning supposed success stories into tomorrow’s wealth destroyers.
The professional investor felt confident explaining his strategy at the dinner party in late 2020. Whilst others chased speculative technology funds and cryptocurrency themes, he had chosen Fundsmith Equity — Terry Smith's sensible approach to quality companies with sustainable competitive advantages. The fund's consistent outperformance over a decade suggested Smith had genuine skill, not just luck.
Four years later, that same investor watches his supposedly sophisticated choice lag behind friends' boring index funds. Smith's refusal to buy Nvidia has cost Fundsmith holders dearly, whilst his concentration in consumer staples has delivered mediocre returns. The "smart money" decision has become an embarrassing anchor on portfolio performance.
This dinner party humbling mirrors a £19 billion wealth destruction experiment that Morningstar has just quantified with brutal precision.
The £19 billion smoke signal
Fund performance chasing reached peak absurdity during 2021's market euphoria. If you invested in ARK Genomic Revolution, Global X Lithium, or iShares Clean Energy during that year's hysteria, you joined millions funding their own wealth destruction.
Morningstar's Jeffrey Ptak tracked five funds that beat their benchmarks by more than 5% annually through August 2021, each attracting massive investor flows precisely when future returns were most vulnerable. ARK Genomic Revolution delivered 20% annual excess returns whilst hoovering up billions in new money. Global X Lithium generated 22.7% outperformance as investors piled into battery technology themes. iShares Clean Energy posted 22.6% excess gains while environmental investing dominated headlines.
These weren't penny shares or cryptocurrency gambles. These were professionally managed ETFs featured on mainstream platforms, recommended by advisers, and marketed as responsible future-focused investing.
The subsequent destruction was swift and merciless. Four of the five funds delivered catastrophic wealth annihilation. ARK Genomic's 20% annual outperformance became 38% annual losses. Global X Lithium's spectacular gains transformed into 29% yearly destruction. iShares Clean Energy's environmental promise delivered 20% annual portfolio erosion.
Only Hartford Schroders International managed modest positive returns after its hyper-growth period, and even that fund dramatically underperformed its previous excess returns.
Your frustration with being sold yesterday's success story is completely justified. The timing wasn't accidental — it was systematic exploitation of predictable human psychology.
Yesterday's winners: the accelerating destruction machine
Fund performance chasing has become more destructive, not less, despite decades of warnings. Investors used to face performance temptation through quarterly newsletters and annual reports. You confront algorithms specifically designed to exploit every cognitive bias that researchers have identified.
Ptak's 27-year analysis reveals an alarming acceleration in wealth destruction following fund popularity. During the early 2000s, hyper-growth funds typically delivered modest underperformance after their asset surge — perhaps 2% to 3% annually below benchmark returns. Disappointing, but survivable.
The 2010s witnessed increased reversal severity, with popular funds averaging 5% to 8% annual losses after peak flows. Painful, but still within normal market volatility expectations.
Post-2020 hyper-growth fund destruction has reached unprecedented levels. Average annual losses now exceed 15%, with some periods showing 20% yearly wealth evaporation. The pattern hasn't just continued — it has intensified dramatically.
Several technology amplification factors explain this escalation. Social media virality spreads fund performance stories faster than investment wisdom can counter them. Zero-commission trading platforms eliminate friction that previously slowed harmful decisions. Algorithmic promotion systematically surfaces yesterday's winners whilst burying boring alternatives. Financial influencer marketing creates celebrity fund managers whose fame peaks precisely when their strategies become most dangerous.
The fund industry has adapted by weaponising these psychological vulnerabilities. ETF wrapper marketing makes speculative themes appear sophisticated. Thematic investing proliferation creates endless opportunities for dangerous concentration. Active ETF launches allow traditional managers to chase retail flows with yesterday's strategies wrapped in today's technology.
Modern technology hasn't democratised investing — it has weaponised ancient cognitive biases against your wealth preservation.
The capacity death spiral
Fund performance chasing fails because success inevitably destroys the conditions that created success. When Gordon Ramsay expanded from one restaurant to 50 locations, the intimate experience that built his reputation disappeared. Fund managers face identical capacity constraints that popularity systematically demolishes.
Consider the restaurant expansion analogy. A small establishment succeeds through carefully curated menus, personal chef attention, and premium ingredients sourced in limited quantities. Rapid expansion pressure forces standardisation—the creative flexibility that attracted customers vanishes. Original vision gets lost in mass market appeal as franchise replication replaces innovative cooking.
Fund strategies follow identical destruction patterns when asset flows overwhelm capacity. Position size limitations force successful small-cap approaches into large-cap mediocrity. Fundsmith's quality screens worked effectively with £5 billion in assets but fail when stretched across £25 billion. Boutique strategies become index-hugging exercises when scaled beyond their natural limits.
Market impact costs compound the destruction. Large orders move prices against fund performance as managers struggle to deploy massive inflows. ARK's Tesla trades shifted stock prices during accumulation phases. Clean energy ETFs bid up entire sector valuations, destroying future return opportunities for late investors.
Investment universe depletion represents the final nail in performance coffins. Successful strategies eventually exhaust opportunities fitting their original criteria. Lithium ETFs expanded to include tangentially related businesses when battery manufacturers became overvalued. Technology funds purchased increasingly speculative companies as established players reached unsustainable prices.
Strategy dilution becomes inevitable as concentrated high-conviction portfolios transform into unwieldy diversification exercises. Risk management replaces opportunity pursuit as fund size overwhelms manager capability. The approach investors admired ceases to exist precisely when their money arrives.
The strategy you invested in died the moment it became popular. Your capital funded its destruction, not its continuation.
The enabler economy profits from your losses
Fund performance chasing persists because entire industries profit from exploiting your wealth-destroying instincts. The enabler economy doesn't accidentally time product launches wrong — it systematically coordinates to maximise revenue extraction during your moment of maximum vulnerability.
Platform algorithms manipulate investor attention with surgical precision, systematically pushing yesterday’s winners while burying tomorrow’s bargains. Hargreaves Lansdown's "Wealth 50" list historically featured recent winners rather than future opportunities. Interactive Investor's trending sections surface yesterday's success stories whilst burying tomorrow's bargains. AJ Bell's fund spotlight programmes coordinate with peak performance periods, not value opportunities.
Professional adviser incentives create systematic bias against your interests. Higher fees on actively managed products generate recommendation favouritism regardless of client outcomes. Commission structures reward product switching over patient holding. "Due diligence" processes validate recent performance rather than predict future returns, creating intellectual cover for wealth-destroying advice.
Media attention cycles coordinate perfectly with your psychological vulnerability. Fund manager profiles peak after performance achievements, not before opportunity windows. Investment magazine covers feature yesterday's stars when their strategies become most dangerous. Podcast interviews get scheduled around marketing campaigns rather than market timing wisdom.
Product launch timing ensures maximum damage to late investors. New fund creation coincides with sector performance peaks. Marketing budget allocation follows success rather than precedes opportunity. Regulatory approval processes guarantee product availability exactly when valuations reach unsustainable levels.
Recent UK examples illustrate systematic timing exploitation. Woodford Patient Capital launched in 2015 following equity fund success but closed in 2021 with 89% investor losses. Technology fund proliferation peaked during 2020-2021's bubble period. ESG fund marketing reached maximum intensity during sustainability performance peaks, not before environmental investing opportunities.
Even institutional enablement follows identical patterns. Pension consultants justify active allocations using backward-looking performance data. Investment committees approve strategies based on historical analysis rather than forward-looking value assessment. Fee structures reward asset gathering over client outcome generation.
Your instinct that the system works against your wealth is absolutely correct.
The boring wealth preservation alternative
The most revolutionary wealth preservation decision involves choosing predictable mediocrity over exciting speculation. Evidence from Ptak's research demonstrates that boring fund approaches systematically outperform entertainment-focused alternatives.
Consider what happened to £10,000 invested in January 2021 across different UK-accessible strategies. Scottish Mortgage Investment Trust investors, chasing growth and technology themes, would have lost approximately £4,200 compared to a boring global index approach. Baillie Gifford American Fund followers, seeking disruptive innovation exposure, sacrificed roughly £3,800 for thematic excitement. L&G Clean Energy UCITS ETF enthusiasts forfeited about £3,500 pursuing sustainability narratives.
Meanwhile, investors choosing diversified approaches like Vanguard FTSE Developed World UCITS ETF gained approximately £2,750 despite requiring zero skill, research, or timing decisions. The wealth preservation gap between excitement and boring discipline exceeds £6,000 over four years — a devastating premium paid for entertainment value.
Boring fund superiority stems from systematic advantages that eliminate fund performance chasing vulnerabilities. Capacity constraints cannot destroy index strategies because global diversification handles unlimited asset growth without dilution. Market capitalisation weighting automatically adjusts exposure to opportunities without manager intervention. No forced expansion into marginal investments occurs because index composition reflects market development rather than asset gathering pressure.
Style drift risks disappear with transparent systematic approaches. Technology sector allocation adjusts with market composition changes rather than manager preferences. No personality-driven sector bets destroy performance through concentration mistakes.
Holdings transparency prevents surprise risk exposures that active funds routinely spring on unsuspecting investors.
Performance pressure distortions vanish when systematic approaches eliminate emotional decision-making requirements. No marketing pressure exists to justify recent portfolio moves. Career risk considerations cannot create conservative bias at inappropriate moments.
Flow-chasing behaviour modifications become impossible when rules-based systems govern all allocation decisions.
Recent evidence validates boring superiority across multiple timeframes. Low-cost global index funds have delivered consistent wealth preservation whilst hypergrowth alternatives destroyed capital through spectacular collapse cycles.
The mathematics prove boring investing represents wealth maximisation, not wealth settling.
Your anti-performance chasing protocol
Fund performance chasing protection requires systematic implementation rather than willpower alone. Specific steps create barriers against wealth-destroying impulses whilst ensuring future decisions serve long-term interests over short-term entertainment.
Immediate portfolio audit: Examine current holdings for thematic concentration or recent spectacular performance characteristics. Funds showing 100%+ gains over recent periods signal danger regardless of underlying strategy quality. Professional management cannot overcome capacity constraints and valuation pressures following massive asset inflows.
Flow analysis monitoring: Research current asset movement patterns into existing holdings. Massive inflows represent exit signals rather than validation opportunities. Popular funds attract money precisely when future returns become most vulnerable to disappointment.
Systematic foundation establishment: Create portfolio core using broad global index approaches covering developed and emerging markets without concentration risks. Diversified systematic strategies avoid capacity constraints that destroy popular alternatives whilst delivering consistent market return capture.
Speculation quarantine: Limit thematic investments and active management experiments to maximum 10% of total portfolio allocation. Excitement budgets satisfy entertainment desires without compromising wealth preservation objectives when speculation inevitably fails.
Emotional decision barriers: Establish annual rebalancing schedules preventing reactive adjustments during market volatility periods. Predetermined rules eliminate timing decisions that systematically damage long-term returns through poorly timed buying and selling behaviour.
Warning signal recognition: Monitor media coverage surges around specific funds or managers as contrarian indicators. Platform promotion featuring recent performance data signals maximum danger periods. New product launches in hot sectors indicate valuation peak timing rather than opportunity beginnings.
These systematic barriers transform fund performance chasing susceptibility into wealth preservation discipline.
The choice between entertainment and wealth
Every fund selection decision offers the same fundamental choice: entertainment value or wealth preservation. Morningstar's 27-year analysis proves these objectives remain mutually exclusive despite industry marketing suggesting otherwise.
The dinner party investor's original Fundsmith selection wasn't wrong because Terry Smith lacks intelligence or integrity. The mistake involved expecting past outperformance to predict future returns despite overwhelming evidence contradicting performance persistence assumptions.
Fund performance chasing appeals to pattern-seeking instincts that served human survival but systematically destroy modern wealth. Your brain evolved to identify short-term threats and opportunities on African savannas, not navigate complex financial markets where success attracts flows that guarantee future failure.
Professional fund managers face identical psychological pressures whilst managing institutional constraints that virtually guarantee performance deterioration following popularity. Success creates asset bloat, media attention, and capacity limitations that systematically undermine the strategies that generated original outperformance.
The evidence overwhelmingly demonstrates that chasing yesterday’s winners undermines wealth, while boring, systematic approaches preserve it. Entertainment taxation on speculation gets paid through your financial future rather than current amusement budgets.
Your wealth preservation depends entirely on choosing systematic mediocrity over thrilling speculation. Fund performance chasing represents the most expensive entertainment purchase possible — trading long-term financial security for short-term psychological satisfaction.
Choose wealth preservation. Choose boring. Choose evidence.
References
Ptak, J. (2025). Your fund crushed. Investors love it. Uh oh. Morningstar Direct.
Morey, M. R. (2003). The kiss of death: A 5-star Morningstar mutual fund rating? Journal of Investment Management, 1(2), 41-52.
Massa, M., & Yadav, V. (2010). Investor attention and the benefits of active fund management. SSRN Electronic Journal.
Greene, J. T., & Stark, J. R. (2016). Product proliferation and investor confusion in mutual funds. Journal of Financial Economics, 119(1), 41-56.
Choi, D., & Zhao, M. (2021). Past performance may be indicative of future results. Management Science, 67(1), 219-235.
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