Outperformance Was Elusive For Active Managers in 2025

Core Insights - Active managers in ETFs and mutual funds struggled to outperform passive peers in 2025, with only 38% achieving this, a 4% decline from the previous year [1] - Long-term performance is concerning, with just 21% of active funds outpacing passive funds over a 10-year period ending in 2025 [1] - International equities showed better performance, with active managers achieving a 48% success rate, and emerging markets leading at 64% [1] Active Management Performance - In 2025, active managers in U.S. stocks had a 37% success rate, down 1% from the previous year, while small-cap stock pickers performed slightly better at 38% [1] - Active bond managers faced a significant decline, with only a 40% success rate, a drop of 24% from the previous year, and corporate bond funds saw a mere 4% success rate, down 63% [1] - Despite short-term challenges, active fixed income management remains appealing, with 42% of managers outperforming passive funds over the long term [1] Investor Behavior and Market Trends - Investors are increasingly looking for international opportunities as U.S. stock valuations appear high, leading to strong flows into international equity ETFs [1] - The report indicates that the average dollar invested in active funds outperformed the average active fund in 17 of 20 categories examined, suggesting a demand for higher quality investments [1] - Morningstar cautions against prematurely declaring passive investing as the winner, noting that active fund performance varies significantly across categories and time periods [1]