This paper explores whether passive fund managers who aim to be in the 1st 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 AUM, it should aim to be in the 1st quartile every year. However, if a fund’s long-term goal is to stay in the 1st quartile, it should aim to be in the 2 nd quartile every year.
