Active Bond Funds Holding Their Own
The latest update to the Morningstar active/passive barometer reveals that actively managed bond funds are much more likely to beat their benchmarks than equity funds.
Every six months or so, Morningstar publishes its Active/Passive Barometer. The Barometer measures, by Morningstar Category, the success rate of actively managed open-end mutual funds versus their passive peers. That success is defined as both surviving and outperforming the average of the passive cohort of the category.
Exchange-traded funds have grown to be an important part of the equation, so we wanted to run a study to complement the Barometer's results by looking at active funds versus passive ETFs as well. We've used a modified version of the success metric. Rather than using a simple average of passive ETFs as the benchmark, we have constructed a replicating portfolio of ETFs for each active fund and used that portfolio as the fund's own benchmark.