Active vs. Passive Funds by Investment Category 2025 Blog Update

Active investing strategies often come with higher expenses for manager skills and involvement. Over the past decade, inflows have tilted toward passive funds as investors seek out cost-effective and broad market exposure.

But some active funds are worth the premium in fees and expenses.

Based on first-half 2024 data, Morningstar’s investment research assesses the long-term success rates of active funds compared with passive funds. Here are the categories where active management stood out and where it fell short.

For the full breakdown, download the free Active vs Passive Barometer report.
Choose your edition:

United States.

Europe.

In 2024, total assets in US passive mutual funds and ETFs narrowly surpassed those in active ones for the first time. Recent data reflects a bigger trend. In the first quarter of 2025, the gap between active and passive assets widened. Passively managed assets grew to over USD 16 trillion, while actively managed assets stood at just over USD 14.1 trillion.

In Europe, active assets continue to dominate. By the end of 2024, the total assets in active mutual funds and ETFs stood at around EUR 9.2 trillion, while passive assets totalled EUR 3.8 trillion.

Passive funds in the US have attracted more inflows than active funds for the past decade, according to Morningstar fund flow data.

In Europe, the balance between active and passive inflows has been more volatile. Though active funds saw impressive inflows in 2017 and 2021, since 2022, inflows into passive funds have been higher. In 2022 and 2023, active funds experienced outflows, but returned to inflows in 2024. It’s important to note that outside of the US, passive strategies only make up 29% of assets under management.

Our researchers used Morningstar’s comprehensive fund data to calculate a category’s success rate, or the percentage of active funds that survived and outperformed a composite of passive funds over time.

Why a composite?

This “benchmark” reflects the net-of-fees performance of investable passive funds. It factors expenses into analysis for a more parallel look at trends in active-fund success.

The report spans nearly 9,279 unique funds with approximately $23 trillion in assets, or about 68% of the US fund market, at the end of 2024.

The European counterpart report spans around 29,500 unique active and passive funds that account for about half of the assets of the European fund market, at the end of 2024.

In the US, actively managed mutual funds and ETFs fell short of their passive peers in 2024. About 42% of active strategies survived and beat their asset-weighted average passive counterparts, a slight decrease from their 47% success rate in 2023.

Actively managed funds did little to change their long-term track record. Less than 22% of them survived and beat their average indexed peer over the decade through 2024.

The US large-cap market has been particularly challenging for active managers due to its high transparency and efficiency, which leaves little room to add value over representative indexes. Just 7% of them survived and beat their average passive rival over the decade through December 2024.

All three large-cap categories saw negative median 10-year excess returns for surviving active funds, and the distribution of excess returns skewed negative. That indicates the penalty for picking a poor active fund normally exceeded the reward for picking a good one.

In Europe, eurozone equity markets experienced higher levels of volatility towards the end of 2024, although there was a clear divide between core markets such as France and Germany, which suffered from political instability, and the thriving periphery.

Active managers in the eurozone large-cap blend category struggled, with only 15.7% beating their passive counterparts in the one-year period to December 2024. In this same category, long-term success rates for active managers remain low, with the average 10-year success rate being around 5.3%. Our research shows that European active managers tend to fare better in the mid-cap and small-cap equity categories compared to large-cap stocks.

A few other active fund categories in the US fell behind their passive counterparts in the last year:

• Foreign equity funds.
• Mid-cap funds.

In Europe, active fund categories which fell behind their passive counterparts include:

Don’t declare passive investing the winner yet.

Active fund performance varies across investment categories and periods. In some regions, they remain the dominant approach in assets under management.

2024 concluded a stellar year for active bond managers in the U.S. Across all three categories we examined, success rates increased. Active intermediate core bond managers led the pack with a sterling 79% success rate, up 18 percentage points from 2023.

Fixed income has been a fertile hunting ground for active managers. Over the past decade, 45% survived and beat their average passive peer. The reward for picking a successful manager also outweighed the penalty of failure for active bond managers, based on positively skewed 10-year excess returns.

In Europe, 2024 was also a successful year for active bond managers. Active managers in the European government-bond category had a one-year success rate of 38.7%, up from 29.6% in 2023, supporting the notion that successfully executed duration plays can add value over short periods.

Money markets is another area where active managers perform particularly well, especially as the current crop of passive funds aren’t too hard to beat. Here, active managers can easily increase yield without compromising the short-term near-risk-free nature of the strategy. Historically, money markets have been quite prolific in the development of active ETFs. The one-year success rate of active managers in the EUR money market category stood at 78.7% in 2024 and remains high on a three- and five-year basis, dropping to a still-high 42.9% on a 10-year horizon as the full effect of higher fees feeds through.

In markets that aren’t as widely followed, portfolio managers may have an edge in expertise. Active US and global real estate strategies’ success rates throughout 2024 remained strong at 66%, up 6 percentage points from 2023.

Notably, 47% of actively managed real estate funds survived and beat their average passive peer, marking the highest success rate among category groups tracked in our study.

Differences in performance between US and ex-US real estate securities caused active managers’ success rates to ebb and flow. Some category funds invest exclusively outside the United States, while others are more global.

Small-cap territory has been relatively kind to active managers in the long term.

That may be because the small-cap market is less efficiently priced. Active managers may have more opportunities to find mispriced stocks in markets where information is less accessible. Over 43% of active small-cap strategies survived and outpaced their average passive rival in 2024, a minor improvement over 2023. However, this rate drops to 26% over a ten-year period.

Overall, active small-growth managers had the best odds of success among US equity categories in the last decade, with the rate standing at around 35%.

Meanwhile in Europe, active managers in the eurozone small-cap equity category had a one-year success rate of 10.2% throughout 2024. Impressively, this success rate skyrockets to 35.9% over a ten-year period. By stark contrast, the ten-year success rate in the eurozone large-cap equity category stood at a pitiful 5.3%.

The US Active/Passive Barometer report and its European counterpart helps professional investors calibrate the odds of succeeding with active funds in different categories. From there, how do you pick the winners to buy?

High tracking error and active share don’t guarantee superior performance but do offer one way for active funds to justify their fees. Some active funds closely replicate the asset weightings of an index fund, but at a higher price point.

Divide a fund’s active share or tracking error by its expense ratio and compare it to a custom benchmark or peer group.

This gives you one indicator of the difference between an active fund and its cheaper passive alternatives.

When evaluating active managers, our researchers consider factors such as the people managing the portfolio, their process, and whether the parent firm aligns its interests with investors.

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