US Active/Passive Barometer Report: Year-End 2025

• Actively managed mutual funds and exchange-traded funds struggled to outperform their average passive peer in 2025. Just 38% survived and beat their asset-weighted average passive composite, down 4 percentage points from a year earlier.
• US stock-pickers also trended slightly lower with a 37% success rate for 2025, a 1-percentage-point drop from 2024. The effects were consistent across the Morningstar Style Box, with the strongest performance from small-cap managers (38% success rate), followed by mid- and large-cap managers (37%).
• International-stock managers fared relatively well in 2025. Active funds in five foreign-only Morningstar Categories saw their collective success rate increase to 48%, up 8 percentage points from the year prior. Diversified emerging-market funds were to thank after posting the top success rate among all categories in this study at 64%, a 42-percentage-point increase from 2024. Woes continued for active global large-blend funds, which combine foreign and domestic stocks, despite a small uptick in success rates. Nearly 26% of global large-blend managers beat the passive benchmark in 2025, up 6 percentage points from 2024.
• Active bond managers’ fortunes reversed in 2025. Across the three fixed-income categories included in the study, success rates plummeted 24 percentage points to 40%. Active intermediate-core bond managers led the cohort with a 55% success rate, while a paltry 4% of active corporate-bond managers beat the passive benchmark. Still, the fixed-income category cohort’s 42% 10-year success rate paced all category groups tracked in this report.
• Active real estate fund success rates fell 54 percentage points to 12% in 2025, reflecting the challenges in US real estate and the weakness of the US dollar.
• Actively managed funds’ long-term record against their passive peers remained relatively flat compared with 2024. Just 21% of active strategies survived and beat their passive counterparts over the 10 years through 2025. Long-term success rates were highest among bond and real estate funds and lowest among US large-cap strategies.
• The distribution of 10-year excess returns for surviving active funds versus the average of their passive peers varied across categories. US large-cap funds had a negative skew, indicating that the performance penalty for picking an unsuccessful manager outweighed the reward for finding a winner. The inverse tends to be true of the real estate and intermediate core bond categories, where excess returns skewed positively over the past decade.
• Investors have chosen active funds wisely. Over the past 10 years, the average dollar invested in active funds outperformed the average active fund in 17 of the 20 categories examined. That implies investors favor cheaper, higher-quality strategies.
• The cheapest active funds succeeded more often than the priciest ones. Over the 10 years through 2025, 31% of active funds in the cheapest quintile of their respective categories beat their average passive peer, compared with 17% for the priciest funds.

• The US large-cap equity market has been a difficult place for active funds to succeed in the long run. Just 10% of them survived and beat their average passive rival over the decade through 2025. That fell well short of the 22% and 25% success rates for active mid- and small-cap managers, respectively.
• Active large-growth strategies have had a particularly hard time delivering value for investors. Of the active funds that existed in this category two decades ago, nearly 66% closed, and just 1% managed to outperform their average indexed peer.
• Active US large-cap managers added to their woes in 2025. Their 36% success rate marked a 1-percentage-point decrease from 2024. Active large-value managers led the pack with a 60% one-year success rate, while large-blend and large-growth funds struggled to 32% and 17% success rates, respectively. Large-growth managers’ 23 percentage-point decline from 2024’s success rate marked the biggest drop among equity categories.
• Expensive active large-cap funds must overcome long odds to succeed: Less than 7% of them beat a composite of their passive peers over the decade through 2025, compared with 17% of cheaper active large-cap strategies. Investors mostly favor cheaper, better-performing active large-cap funds: The average asset-weighted active return exceeded the average equal-weighted active return across all large-cap categories and periods.
• Over the decade through 2025, passive large-growth funds beat their active peers by 2.2 percentage points annualized by asset-weighted average—the widest performance margin across all categories. Passive large-blend posted the second-highest advantage at 1.3 percentage points, and active large- value funds eked out a 0.1-percentage-point annual advantage over passives during the same span.
• Surviving active funds’ median 10-year excess returns were negative across all three US large-cap categories, and the distributions of excess returns had a negative skew. Not only was the likelihood of picking a successful active fund low, but the penalty for poor manager selection far outstripped the reward for choosing a winner.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

• Of the active mid-cap funds, 36% survived and outpaced their average passive peer in 2025, a decline of 1 percentage point from a year earlier.
• Active funds in the mid-cap growth and mid-cap blend categories saw their already shaky success rates fall to 25% and 34%, respectively. Mid-cap value funds were a bright spot for active managers with a 51% success rate—a 10-percentage-point increase from 2024.
• Mid-cap funds hunt at the “crossroads” of large- and small-cap companies, which leads to portfolios that bleed into other market-cap segments and oscillating success rates. Indeed, success rates for active mid-cap strategies tended to be more volatile than large- or small-cap categories in recent years.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

• Active small-cap strategies saw down-trending success rates in 2025. Less than 38% survived and outpaced their average passive rival, a 6-percentage-point drop from the year earlier.
• Long-term active success rates have been higher in the small-cap arena than those among large-cap funds. One reason is that the small-cap market is priced less efficiently.
• Relative success versus large caps hasn’t amounted to much for active small-cap managers. Just 25% survived and outperformed their average passive peer over the decade through 2025. Still, active small-growth managers had the best success rates (39%) among US equity categories over the past 10 years.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

• Active managers who weave global- or foreign-stock portfolios succeeded at a 44% clip in 2025, a 7-percentage-point increase from the year before. Active diversified emerging-market funds increased their success rates at the highest clip of any category included in this report (42 percentage points) to 64%. The success rates of other foreign-stock and Europe-stock managers declined by at least 13 percentage points in 2025 from the year prior.
• The global- and foreign-stock categories have been a bit kinder to active managers than the US market segments. At 24%, foreign-stock funds’ 10-year active success rate measured up better than the 16% rate for active US stock funds.
• Active managers in the foreign small/mid-blend category have struggled to keep their funds on the market. At 39%, this category’s 10-year survivorship rate ranked the lowest among all categories tested.
• Foreign-stock funds often come with higher fees than domestic strategies, which gives cheap funds in those categories a greater advantage. Indeed, the cheapest quintile of active funds was more than twice as likely to beat the average passive peer than the most expensive quintile over the past 10 years.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

• Over the decade through 2025, 39% of actively managed real estate funds survived and beat their average passive peer, trailing only fixed income among category groups tracked in this study.
• Success rates in the global real estate category fluctuate dramatically over shorter time horizons. This is due to the diversity of funds within the category. Some invest exclusively outside the US, while others are more truly global. Passive strategies tend to disproportionately invest in international-only portfolios, so differences in performance between US and ex-US real estate securities cause active managers’ success rates to ebb and flow. In 2025, the success rate of active global real estate funds collapsed 58 percentage points to 10% after international real estate outpaced the US, and the US dollar lost value.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

• Active bond managers’ success rates declined for all three fixed-income categories in 2025. Active intermediate-core-bond managers held strong at a success rate of 55%, but that represented a 26-percentage-point decline from the year earlier. Active corporate-bond managers had the most drastic decline in the success rate of all categories, dropping 63 percentage points to just 4%. Active high-yield bond managers didn’t fare too much better as their success rate dropped 14 percentage points to 38%.
• Actively managed bond funds tend to take more credit risk than indexed peers in each of the three categories included in this study. That worked against them in April 2025, when credit spreads widened amid tariff announcements and increased geopolitical risk. In the corporate-bond category, for example, active managers appeared to cut credit risk as spreads widened only to miss the rebound when they narrowed again in May and June.
• Fixed income has been a fertile hunting ground for active managers. Over the past decade, 42% survived and beat their average passive peer, the highest among all categories included in this study. The reward for picking a successful active bond manager also outweighed the penalty of failure, based on positively skewed 10-year excess returns. The value proposition for going active in fixed income remains strong, despite a rough year for active bond managers in 2025.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

Source: Morningstar. Data and calculations as of Dec. 31, 2025.

Morningstar’s US open-end and exchange-traded funds database.

All ETFs and open-end mutual funds (excluding funds of funds and money market funds) in each Morningstar Category that existed at the beginning of the relevant period (including funds that did not survive to the end of the period) defined the eligible universe. To be included, the fund’s inception date must precede the start of the period and the obsolete date cannot predate the start of the period. In addition, each must have asset data for at least one share class in the month prior to the start of the sample period (the beginning of the trailing one-, three-, five-, 10-, 15-, or 20-year period) to facilitate asset weighting.

To calculate survivorship, we divide the number of distinct funds (based on unique fund ID at the beginning of the period) that started and ended the period in question by the total number of funds that existed at the onset of the period in question (the beginning of the trailing one-, three-, five-, 10-, 15-, or 20-year period).

We calculate the asset-weighted returns for each cohort using each share class’ monthly assets and returns. When an active fund becomes obsolete, its historical data remains in the sample. Funds that incept or migrate into the category after the start of the period are not included. The passive composite takes the start of period asset-weight and applies that weighting to performance throughout the period. When a passive fund becomes obsolete, its starting weight is subsumed by the passive composite using their pro rata starting weights.

In order to come up with a single return figure for funds with multiple share classes, we first calculate the asset-weighted average of all the fund’s share classes. We then take the simple equal-weighted average of the monthly returns for each fund in the group and compound those returns over the sample period. As before, when a fund becomes obsolete, its historical data remains in the sample. Funds that incept or are moved into the category after the start of the period are not included.

The success rate indicates what percentage of funds that started the sample period went on to survive and generate a return in excess of the asset-weighted average passive fund return over the period. This approach differs from the convention of using a single, representative index to gauge success. We do not consider magnitude of outperformance in defining success: A fund that just barely beat the passive alternative counts as much as a fund that significantly outperformed.

As in the equal-weighted return calculation, we calculate the asset-weighted average of all the fund’s share classes to come up with a single return figure for funds with multiple share classes. We then rank the funds by their composite returns, count the number that rank higher than the equal weighted average return for the passive funds in the category, and divide that number by the number of funds at the beginning of the period (using the same number from the denominator of the survivorship calculations).

We rank each fund by its annual report expense ratio from the year prior to the start of the sample period and group them into quintiles. We then apply the same steps described above to calculate the success rates for funds in each quintile. To be counted in the starting number of funds used for purposes of calculating the survivorship and success rates, each fund must have an annual report expense ratio at the beginning of the sample period.

We measure surviving active funds’ excess returns relative to the asset-weighted average passive fund return in each category.

Our “benchmark” for measuring success is different from others’. We measure active managers’ success relative to investable passive alternatives in the same category. For example, an active manager in the US large-blend category is measured against a composite of the performance of its index mutual fund and ETF peers (for example, 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 (that is, “passive”) options in each category that we examine and use that figure as the hurdle that defines success or failure for the active funds in the same category. The magnitude of outperformance or underperformance does not influence the success rate. However, this data is reflected in the average return figures for the funds in each group, which we report separately.

We believe this is a better benchmark because it reflects the performance of actual investable options and not an index. One cannot directly invest in indexes. Their performance does not account for the real costs associated with replicating their performance and packaging and distributing them in an investable format. Also, the success rate for active managers can vary depending on one’s choice of benchmark. For example, the rate of success among US large-blend fund managers may vary depending on whether one uses the S&P 500 or the Russell 1000 Index as the basis for comparison. By using a composite of investable alternatives within funds’ relevant categories as our benchmark, we account for the frictions involved in index investing (fees, as well as others) and we mitigate the effects that might stem from cherry-picking a single index as a benchmark. The net result is a much fairer comparison of how investors in actively managed funds have fared relative to those who have opted for a passive approach.

We measure each fund’s performance based on the asset-weighted average performance of all of its share classes in calculating success rates. This approach reflects the experience of the average dollar invested in each fund. We then rank these composite fund returns from highest to lowest and count the number of funds with returns exceeding the equal-weighted average of the passive funds in the category. The success rates are defined as the ratio of these figures to the number of funds that existed at the beginning of the period. Given this unique approach, our field of study is narrower than others, as the universe of categories that contained a sufficient set of investable index-tracking funds was fairly narrow at the end of 2004. We expect the number of categories we include in this study will expand over time.

We cut along the lines of cost. Cost matters. Fees are one of the best predictors of future fund performance. We have sliced our universe into fee quintiles to highlight this relationship.

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