7 min read
Active vs. Passive Funds by Investment Category
What are the odds of succeeding with active funds vs. passive funds?
Key Takeaways
Do Actively or Passively Managed Funds Attract More Inflows?
Flows suggest investors prefer active ETFs to active mutual funds.
How We Created the Active/Passive Barometer
Active Funds Fell Short of Passive Funds in 2023
Active large-cap equity funds
Active US large-cap growth managers fared better in 2023. Their 50% success rate marked a 4-percentage-point increase from 2022.
![Morningstar. Data and calculations as of December 31, 2023.](/content/cs-images/v3/assets/blt9415ea4cc4157833/blt1f812d3c0ccddf1e/665736ae20b6e0ad8dfad605/Active-vs-Passive-Large-Growth-Funds-Success.png?format=webp&auto=webp&disable=upscale&width=null)
Morningstar. Data and calculations as of December 31, 2023.
The negative skew of distributions of excess returns indicates that with large-growth funds, the penalty for poor manager selection tended to be greater than the reward for choosing a winner.
![Morningstar. Data and calculations as of December 31, 2023.](/content/cs-images/v3/assets/blt9415ea4cc4157833/bltbf7c334450318e6c/665739ad86ba8b387d1d6ed3/Active-vs-Passive-Large-Growth_Funds-Returns.png?format=webp&auto=webp&disable=upscale&width=null)
Morningstar. Data and calculations as of December 31, 2023.
When Does Active Management Outperform Passive Management?
Active fixed-income funds
Rolling success rates for surviving active intermediate-core bond funds. Active managers held a 57% success rate, up from 38% in 2022.
![Morningstar. Data and calculations as of December 31, 2023.](/content/cs-images/v3/assets/blt9415ea4cc4157833/blt9982ecf10590ef66/665737bc1f92d166ce280bbf/Active-vs-Passive-Bond-Funds-Success.png?format=webp&auto=webp&disable=upscale&width=null)
Morningstar. Data and calculations as of December 31, 2023.
Mortality and distribution of 10-year annualized excess returns for surviving active intermediate-core bonds. Although just half of funds survived the full period, 63% of the ones that did succeeded.
![Morningstar. Data and calculations as of December 31, 2023.](/content/cs-images/v3/assets/blt9415ea4cc4157833/blt26923d325425076e/6657380fe4294921eba78d9c/Active-vs-Passive-Bond-Funds-Returns.png?format=webp&auto=webp&disable=upscale&width=null)
Morningstar. Data and calculations as of December 31, 2023.
Active real estate funds
Active strategies’ 55% success rate marked a 22-percentage-point gain over 2022, returning to a level more in line with their relatively solid long-term results.
![Morningstar. Data and calculations as of December 31, 2023.](/content/cs-images/v3/assets/blt9415ea4cc4157833/bltc60d72d965d1f668/66573a7440a36d426cdbf3ca/Active-vs-Passive-Real-Estate-Funds-Success.png?format=webp&auto=webp&disable=upscale&width=null)
Morningstar. Data and calculations as of December 31, 2023.
The long tail to the left indicates the potential penalty for picking the wrong active real estate fund.
![Morningstar. Data and calculations as of December 31, 2023.](/content/cs-images/v3/assets/blt9415ea4cc4157833/blt4e563237194b0457/66573a1de429490de5a78db3/Active-vs-Passive-Real-Estate-Funds-Returns.png?format=webp&auto=webp&disable=upscale&width=null)
Morningstar. Data and calculations as of December 31, 2023.
Active small-cap equity funds
In 2023, small-cap managers saw their one-year success rates drop to their lowest levels in several years.
![Morningstar. Data and calculations as of December 31, 2023.](/content/cs-images/v3/assets/blt9415ea4cc4157833/bltbb562f165f42d61f/665739281cd2173b0959a23a/Active-vs-Passive-Small-Growth-Funds-Success.png?format=webp&auto=webp&disable=upscale&width=null)
Morningstar. Data and calculations as of December 31, 2023.
The mortality and distribution of 10-year annualized excess returns for surviving active small-growth funds. The long right tail indicates that success can mean winning big.
![Morningstar. Data and calculations as of December 31, 2023.](/content/cs-images/v3/assets/blt9415ea4cc4157833/bltf0751ca70e965534/6657362d36a79433f260bb9c/Active-vs-Passive-Small-Growth-Funds-Returns.png?format=webp&auto=webp&disable=upscale&width=null)
Morningstar. Data and calculations as of December 31, 2023.