Active vs. Passive Funds in 2025: What the Data Actually Says

Each year, Morningstar publishes one of the most comprehensive scorecards in investing: the Active/Passive Barometer. It compares actively managed funds to real-world, investable passive funds (not theoretical benchmarks), measuring success rates across asset classes and time periods.

The 2025 results reinforce several long-standing trends — with a few important nuances.

The Big Picture

In 2025, just 38% of active funds both survived and outperformed their passive peers. That’s down from the prior year and consistent with long-term data showing that active management faces steep odds.

Over the past 10 years through 2025:

1. Only 21% of active funds survived and beat passive alternatives.
2. In U.S. large-cap stocks, success rates were especially low.
3. Bond funds and certain niche categories fared somewhat better.

U.S. Large Caps: A Tough Arena for Active Managers

Large-cap U.S. stocks continue to be one of the hardest areas for active managers to justify their fees.

1. Only about 10% of active large-cap funds beat passive peers over the past decade.
2. Large-growth was particularly challenging.
3. The penalty for picking a losing manager was often greater than the reward for picking a winner.

In fact, passive large-growth funds outperformed active peers by more than 2% annually over 10 years — one of the widest gaps in the study.

For investors, that’s a meaningful compounding difference.

Mid- and Small-Cap Stocks: Better, But Still Not Easy

Active managers had slightly better success rates in mid- and small-cap stocks.

1. Mid-cap value managers showed stronger one-year results in 2025.
2. Small-cap strategies have historically had higher success rates than large caps, partly because that segment is less efficiently priced.

But even here, long-term success rates were far from overwhelming. Over 10 years, only about a quarter of small-cap managers beat passive peers.

International Stocks: A Bright Spot in 2025

Active international managers had a relatively strong year.

• Foreign-only stock categories saw improved success rates.

• Diversified emerging-markets funds stood out in 2025.

However, the long-term record remains mixed. One good year doesn’t overturn a decade of data.

Bonds: Mixed Results

Active bond managers experienced a reversal in 2025, with success rates declining across several categories.

That said, over the past 10 years, fixed-income categories have had higher success rates than most equity categories, making bonds one of the more defensible areas for selective active management.

The Most Important Finding: Fees Matter

One of the clearest conclusions from the report:

1. 31% of the cheapest active funds beat passive peers over 10 years.
2. Only 17% of the most expensive funds did.

Lower cost significantly improves the odds — but it still doesn’t guarantee success.

Management fees remain one of the few variables investors can actually control.

What This Means for Your Portfolio

The data reinforces several practical principles:

1. Start with low-cost passive exposure, especially in efficient markets like U.S. large caps.
2. Prioritize cost discipline — fees materially affect long-term outcomes.
3. Avoid performance chasing. One strong year does not change structural probabilities.

Active management is not dead. But the bar is high.

The evidence continues to support a disciplined, cost-aware approach that uses passive investments as a core foundation.

As always, the goal isn’t to “win the active vs. passive debate.” The goal is to maximize your probability of long-term success.

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