Active managers face shrinking odds of beating indexes, Morningstar finds

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.