Survivorship Bias

What is 'Survivorship Bias'

Survivorship bias is the tendency for mutual funds with poor performance to be dropped by mutual fund companies, generally because of poor results or low asset accumulation. This phenomenon, which is widespread in the fund industry, results in an overestimation of the past returns of mutual funds.

Also known as "survivor bias".

BREAKING DOWN 'Survivorship Bias'

For example, a mutual fund company's selection of funds today will include only those that have been successful in the past. Many losing funds are closed and merged into other funds to hide poor performance. This is an important issue to take into account when analyzing past performance.