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Active vs. Passive Fund Management: Our Research on Performance
4 Takeaways from the 2017 year-end Morningstar Active/Passive Barometer
The Morningstar Active/Passive Barometer is a
semiannual report that measures the performance of U.S. active
managers against their passive peers within their respective
categories. The barometer is unique in the way it measures active
managers’ success relative to the actual, net-of-fee performance of
passive funds rather than an index, which isn’t investable. We measure actively managed funds’ success relative to investable
passive alternatives in the same category. For example, an active
manager in the U.S. large-blend category is measured against a
composite of the performance of its index mutual fund and
exchange-traded fund peers Vanguard Total Stock Market Index (VTSMX), SPDR S&P 500 ETF (SPY), and so on. Specifically, we calculate the
equal- and asset-weighted performance of the cohort of index-tracking
(“passive”) options in each category that we examine, and we use that
figure as the hurdle that defines success or failure for the active
funds in the same category. Although 2017 marked a clear near-term improvement in active
managers’ success rates, many of their long-term track records leave
much to be desired. In general, actively managed funds have failed to
survive and beat their benchmarks, especially over longer time horizons. Read takeaways from our midyear
report, which shows that success rates among active fund managers
tumbled in the first half of 2018.
Review the research highlights of Q2 with Tom Lauricella, editor
of Morningstar’s Research Portal, by watching a recording of our
recent webinar, “Q2 Research Highlights and Trends in Morningstar
Cloud”. Learn how your peers are using the Research Portal in
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curated from Morningstar's 300+ global analysts.
Please see below for important disclosure.
Important Disclosure
The information, data, analyses and opinions presented herein do
not constitute investment advice; are provided solely for
informational purposes and therefore are not an offer to buy or sell
a security; and are not warranted to be correct, complete or
accurate. The opinions expressed are as of the date written and are
subject to change without notice. Except as otherwise required by
law, Morningstar shall not be responsible for any trading decisions,
damages or other losses resulting from, or related to, the
information, data, analyses or opinions or their use. The
information contained herein is the proprietary property of
Morningstar and may not be reproduced, in whole or in part, or used
in any manner, without the prior written consent of Morningstar.
Investment research is produced and issued by Morningstar, Inc. or
subsidiaries of Morningstar, Inc. including, but not limited to,
Morningstar Research Services LLC, registered with and governed by
the U.S. Securities and Exchange Commission.
Individual index information is provided as a reference only. Each
index is unmanaged and is not available for direct investment. Since
indexes and/or composition levels may change over time, actual
return and risk characteristics may be higher or lower than those
discussed. Although Index performance data is gathered from reliable
sources, we cannot guarantee its accuracy, completeness or reliability.
This article contains certain forward-looking statements. We use
words such as “expects”, “anticipates”, “believes”, “estimates”,
“forecasts”, and similar expressions to identify forward looking
statements. Such forward-looking statements involve known and
unknown risks, uncertainties, and other factors which may cause the
actual results to differ materially and/or substantially from any
future results, performance or achievements expressed or implied by
those projected in the forward-looking statements for any reason.
Past performance does not guarantee future results.Ben Johnson, Morningstar Research
Services LLC
4 takeaways about active vs. passive fund management from our
year-end 2017 report
Read the full research paper
"Active/Passive Barometer: Year-End 2017"