As the year draws to a close, the annual performance ranking battle in the fund industry is heating up. Performance rankings serve as a crucial tool for evaluating the investment ability of fund managers and companies over a given period. They provide investors with valuable insights and can significantly impact investment decisions. However, market participants must approach these rankings with a sense of balance and rationality. While performance rankings are important, they should not be viewed in isolation. It is critical to consider long-term trends, examine the investment logic behind impressive returns, and understand the fund manager’s strategy and research capabilities. Solely chasing rankings without deeper analysis can be misleading and ultimately counterproductive.

Fund companies place significant emphasis on performance rankings because a high position in these rankings can help build a brand, attract more investors, and increase assets under management. Many companies are particularly driven by the desire to grow their scale, but in doing so, some may stray from the original fiduciary responsibility of managing funds on behalf of clients. Fund managers also benefit from strong rankings, as they often lead to both fame and financial rewards. For investors, the rankings are a tool for identifying promising funds and, ideally, achieving the highest possible returns. In this context, objective and fair performance rankings should benefit market efficiency and transparency. However, it is essential that these rankings reflect genuine improvements in investment research and strategy, rather than being artificially inflated for the sake of competition.

Looking at the industry from a broader perspective, it’s clear that the “performance ranking battle” has become less chaotic in recent years. Thanks to ongoing industry reforms and the increasing sophistication of investors, many of the more problematic practices have diminished. Nonetheless, some concerning phenomena remain. For example, some fund products aim for short-term performance boosts by engaging in cross-sector investments, shifting strategies, or temporarily suspending new subscriptions. A number of niche theme-based funds, which are not currently popular in the market, often deviate from their stated investment mandates, leading to style drift. Additionally, funds marketed as “stable” or “value-oriented” may begin to invest heavily in trendy growth stocks, such as those related to artificial intelligence (AI), in order to boost short-term returns. Another common occurrence is the manipulation of smaller, flexible funds that adopt aggressive investment strategies to gain a competitive edge in the rankings, often going so far as to suspend large subscriptions to maintain this advantage.

Even more troubling are the tactics some funds use to suppress the stocks of competitors or artificially inflate the value of their own holdings by manipulating cross-holdings or engaging in trading with related funds. In response to these unethical practices, regulatory authorities have ramped up efforts to crack down on such behavior. In recent years, there has been a concerted push to reduce the overemphasis on “star fund managers” and flagship products, instead promoting a more balanced approach to investment management that encourages the development of integrated, team-based research capabilities and diversified strategies.

From the perspective of the industry, fund companies should recognize the changing investment environment and leverage performance rankings as a tool for positive reinforcement. The key to success lies in enhancing research and investment capabilities over the long term. One important step in this direction is to adopt long-term evaluation periods, such as 3-year or 5-year performance assessments, which focus on consistent performance rather than short-term fluctuations. It is encouraging to see that many leading fund companies are already moving away from the “star manager” mentality and are increasing the proportion of products evaluated on a longer-term basis. Some companies are even exploring new performance evaluation metrics, such as compliance and risk control indicators, alongside economic and social responsibility factors, to more accurately align the interests of fund managers and investors over time.

Another vital area for improvement is enhancing the stability and sustainability of fund performance. In the world of stock market investing, it is rare to find consistent “winners.” The phenomenon of the “champion curse,” where the top-performing fund in one year quickly fades into mediocrity the next, is a well-known occurrence. Relying on short-term tactics to boost rankings will inevitably lead to volatility, and this can harm both the fund's performance and its long-term reputation. Sustainable success in fund management comes from solid research, strategic planning, and careful risk management. It is the steady and consistent growth that truly delivers long-term value to investors.

Finally, it is crucial for fund companies to communicate their investment philosophy clearly and build long-term relationships with investors. Investment is a marathon, not a sprint, and endurance matters more than speed. More and more investors are now realizing the importance of a long-term, holistic approach to fund selection, rather than simply chasing short-term rankings. Fund companies should prioritize understanding their investor base—focusing on factors like risk tolerance, investment horizon, and personal financial goals—and tailor their products and services to meet these needs. Open, transparent communication with investors, coupled with a strong commitment to long-term value creation, will foster trust and help build long-lasting partnerships.

Ultimately, time is the true test of success in the investment world. The funds that withstand the test of time and demonstrate consistent value creation will stand out, while those that rely on short-term tactics will eventually falter. Investors who approach the annual “performance ranking battle” with a rational mindset, focusing on the long-term prospects of a fund and understanding the strategies that drive success, will be better positioned to make informed investment choices. By valuing substance over style and focusing on real, sustainable growth, investors can achieve long-term success while contributing to the broader stability and efficiency of the fund industry.