European Active/Passive Barometer Report: Mid-Year 2026

6 August 2026

Eugene Gorbatikov
Analyst

Jose Garcia-Zarate
Senior Principal

Introduction

The Morningstar Active/Passive Barometer is a semiannual report that measures the performance of active funds against passive peers in their respective European, Asian, and African Morningstar Categories.

The Active/Passive Barometer uses unique ways to measure active managers' success:

It evaluates active funds against a composite of actual passive funds—not versus a costless index. In this way, the benchmark reflects the actual, net-of-fee performance of the passive funds available to investors.
It assesses active funds based on their beginning-of-period category classification to better simulate the funds an investor would have chosen at the time.
It considers how the average unit of currency invested in various types of active funds has fared versus the average unit of currency in passive funds.

The Active/Passive Barometer is also comprehensive, spanning around 32,000 unique active and passive Europe-domiciled funds that account for about half the assets of the European fund market.

All told, the Active/Passive Barometer is a useful tool that can help investors calibrate the odds of succeeding with active funds in different areas based on recent trends and longer-term history.

We include historical active funds' success rates in our analysis. This provides valuable insights into how active managers have navigated market events in the past and how this affected their short-and long-term performance.

Key Takeaways: The Broad Picture

The storyline of the first half of 2026 was one of dominance of equity markets. The strong momentum generated by the artificial intelligence supercyclemade investors brush aside all the economic concerns generated by the tense geopolitical situation in the Middle East. Uncertainty on this front continues,particularly regarding the free flow of oil tankers through the Strait of Hormuz, but investors’ minds are firmly focused on earnings growth and AI-related capital investment. Global equities finished the first half of 2026 at near-record highs in many markets.
The one-year success rate of active equity managers for the group of 39 equity categories examined came in at 28.4% at the end of June 2026, down from 30.5% at the close of 2025 and slightly below the 28.7% registered a year earlier in June 2025. The one-year success rate is volatile, but since 2022, it has hovered in a tight 25%-35% range. This remains a period of high concentration across equity markets across the world, one where active equity managers are struggling to swim against the strong momentum generated by the technology sector. Over longer periods, the rate of success declines sharply. In the three years to the end of June 2026, it stood at 20.3%, declining to 15.2% over five years and to 11.9% in the 10-year period.
Global bond markets delivered a modest performance in the first half of 2026, finding some support on falling yields in the second quarter as tensions in the Middle East eased considerably. Credit outperformed sovereign debt on the strength of corporate earnings and overall resilient economic performance despite the geopolitical headwinds. But overall, bond markets remained on the sidelines in the period as investors focused squarely on equities.
The one-year success rate for active bond managers for the group of 21 bond categories examined came in at 46.8% at the end of June 2026, down from 54.8% at the close of 2025 and 47.3% a year earlier in June 2025. Over longer horizons, the success rate for active bond managers falls as the benefits of compounding low fees charged by passive funds kick in. The three-year success rate stood at 51.1% at the end of June 2026, going down to 47.5% over five years and to 33.% over the10-year period. Success rates for active bond managers are consistently higher than for their equity counterparts. This neatly encapsulates the fact that indexing is less efficient for bond markets than for equity markets.
Irrespective of asset class, the likelihood of a fund's survival is linked closely to its success rate. The primary reason most active funds falter is their short lifespan, often attributed to subpar performance. This typically stems from a combination of poor security selection and the compounded impact of higherfees compared with cheaper passive alternatives. And in fact, our analysis shows that active funds in the cheaper quintiles have higher odds of succeeding in the long run.

Key Takeaways: Equity Categories

The US equity market rebounded from the geopolitically driven lows of March to close the first half of 2026 with firm gains. The S&P 500 index rose by 10.2%, while the Nasdaq 100 went up by 20.3%. Strong earnings growth, particularly in technology companies, and sustained AI investment spending were the key drivers. The one-year success rate for active managers in the US large-cap blend category was 33.9% in June 2026, mildly down from 36.8% at the end of 2025, but significantly up from 19.6% in June 2025. The US equity market leadership has broadened beyond the Magnificent Seven toward semiconductor manufacturers and AI-infrastructure firms. This has opened opportunities for active managers to add value. However, this remains one of the toughest categories for active managers to succeed in the long run. The 10-year success rate stood at 6.3% in June 2026.
Eurozone equity markets were overshadowed by the AI-driven gains of the US equity market, although most countries closed the first half of 2026 with decent gains. The positive sentiment that supported markets like Spain and Italy in 2025 rolled over to 2026, allowing them to continue outperforming France and Germany. Traditionally, short-term success for active managers in the eurozone equity space has been on the low side. The one-year success rate in the eurozone large-cap blend category stood at 19.7% in June 2026, up from 17.5% at the close of 2025, but down from 23.2% in June 2025. Over the 10-year period to June 2026, the success rate was 4.3%.
The UK equity market had to contend with domestic political struggles, eventually resulting in the resignation of Prime Minister Keir Starmer and the installation of a new government led by Andy Burnham. Despite all this, the Morningstar UK All Cap Target Market Exposure Index rose by just over 7.0% in pound sterling terms in the first half of 2026. However, the one-year success rate for active managers in the UK large-cap equity category has collapsed in the 12-month period to June 2026. From 47% in June 2025, it dropped to 27.3% at the close of 2025 and further to 15.6% in June 2026. Mid-caps and small caps, which active managers tend to overweight in a bid to add value over a standard large-cap index approach, underperformed in this period of extreme concentration of returns in a handful of stocks, including HSBC, Rolls-Royce, and AstraZeneca.
Emerging-market equities are another of the key beneficiaries of the AI-driven momentum. Equity markets like Taiwan and South Korea have been supported by strong earnings growth of companies involved in the AI supply chain. The one-year success rate for active managers in the global emerging-market equity category was a very solid 64.6% in June 2026, up from 50.4% at the close of 2025 and from 30% in June 2025. This is an area where mid-and small-cap companies, many of which are involved in tech activities, are underrepresented in indexes, which makes for relatively easy pickings for active managers if the market conditions are supportive.
Generally, active managers tend to achieve higher success rates within mid-and small-cap equity categories compared with those focusing on large-cap stocks. Additionally, active funds are more likely to succeed in equity categories where the average passive counterpart exhibits a structural bias toward a particular economic sector or is concentrated on a few individual names.

Key Takeaways: Fixed-Income Categories

Duration remained a key factor for active managers to play with in the first half of 2026. In the first quarter, duration acted as a drag as bond yields rose across the board in response to the escalation of tensions in the Middle East. In contrast, in the second quarter, duration was a tailwind to returns as yields declined. Skillful active bond managers could profit in both scenarios. The one-year success rate for active managers in the euro government-bond category stood at 50.3%, up from 41.6% at the close of 2025 and 30.6% in June 2025. Meanwhile, the one-year success rate for their peers in the GBP government-bond category came in at a remarkably high 79.3%, up from 47% on average at the close of 2025 and in June 2025. The UK government-bond market was particularly volatile in the first half of 2026, with fiscal and political concerns weighing and creating fertile ground for active managers to excel. In any case, government bonds remain the area in fixed income where an active approach is more vulnerable to passive peers over long periods. In June 2026, the 10-year success rate for active managers in the euro government-bond category stood at 18.5%, and it was 10.3% inthe GBP government-bond category.
Corporate bond markets outperformed government bonds in the first half of 2026, supported by strong corporate earnings growth. The one-year success rate in the euro corporate bond category came in at 50.8%, while that for the GBP corporate bond category was 54.9%. Both categories recorded similar one-year success rates at the close of 2025 and June 2025. Success rates in these categories tend to decrease over time because of the impact of higher fees compared with passivepeers, but not to the extent seen in the government-bond categories. In June 2026, the 10-year success rate in the euro corporate bond category stood at 45.3%, while in the GBP category, it came in at 36.4%.
The one-year rate of success of active managers in the euro high-yield bond category rebounded from a low of 26.1% at the close of 2025 to 41.5% in June 2026. A year earlier in June 2025, the rate was 46.2%. Within the fixed-income universe, high yield is one of the areas where active managers have traditionally reported very solid rates of success over short and long periods. The market saw some volatility in the first half of 2026, with credit spreads widening on macroeconomic risks. This was a period when credit selection was again key and, thus, an opportunity for active managers to add value. The 10-year rate of success for active managers in this category stood at a very decent 31.5% in June 2026.
Active managers in the emerging-market bond categories—hard and local currency—continued to exploit country selection in the first half of 2026. In contrast to 2025, when a weaker US dollar was supportive, its appreciation acted as a headwind this time. In June 2026, the one-year success rate for active managers in the global emerging-market bond category (hard currency) was 56.8%, while for managers in the local-currency category, it stood at 76.3%.