Actively managed funds struggled broadly to outperform their passive counterparts in 2025, highlighting challenges for stock picking strategies across the US mutual fund and ETF landscape.
The semiannual US Active/Passive Barometer Year-End 2025 report from Morningstar spans roughly 9,248 unique funds representing about $26 trillion in assets, or approximately 67% of the US fund market.
The report shows that just 38% of active funds both survived and outperformed the asset-weighted average of comparable passive funds in 2025, a decline of four percentage points from the previous year. US equity managers posted a 37% success rate for the year ended Dec. 31, 2025, slightly below their 2024 results.
International equity strategies offered a comparatively stronger showing. Active funds across five foreign-only categories recorded a combined 48% success rate, up eight percentage points year over year. Diversified emerging-markets funds stood out, with a 64% success rate, the highest among categories measured. By contrast, global large-blend active funds continued to struggle, as only 26% topped their passive counterparts despite a modest improvement from the prior year.
Fixed income managers also encountered difficulty. Overall, active bond funds recorded a 40% success rate, with intermediate-core bond funds achieving 55%. Corporate bond funds were among the weakest segments, with just 4% outperforming passive peers. Active real estate funds fared worse, as their success rate fell 54 percentage points to 12% amid headwinds in the U.S. property market and a weaker dollar.
Longer-term data remained challenging for active strategies. Over the 10 years through 2025, only 21% of active funds both survived and outperformed passive alternatives. Fixed-income and real estate funds showed relatively better long-term results compared with U.S. large-cap strategies, which ranked among the weakest performers over the decade.
The analysis also highlights fees as a key differentiator. Lower-cost active funds tended to post higher long-term success rates than their more expensive peers. In several categories, including U.S. large-cap, the dispersion of outcomes suggests that the potential downside from selecting an underperforming manager often exceeded the upside of choosing a top performer.
Morningstar’s Active/Passive Barometer evaluates active funds against composite passive benchmarks that reflect real-world, net-of-fee performance. It also measures how the average dollar invested in active funds performed relative to passive equivalents, providing advisors and investors with a detailed look at the probabilities and risks involved in choosing active management over indexing.
A score is generated to show coverage needs across life insurance, long-term care coverage, retirement income protection, and annuities.
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