2025 – another year of passive fund dominance

2025 has proved to be another year of passive strategy dominance, according to the latest analysis from research and ratings house, Morningstar.

The latest Morningstar Active/Passive Barometer Report, spanning over 800 open-ended strategies, has driven home the degree to which active fund managers are continuing to struggle against their passive peers.

According to the Morningstar analysis, passive strategies outperformed their actively managed counterparts across the majority of the segments over the past year, contributing to a decline in 10-year trailing success rates across most categories.

However, it noted that top-quartile performers across eight of the nine categories generated positive excess returns over the trailing 10-year period, emphasising the importance of good manager selection.

The analysis also noted that certain categories such as Australia mid/small-blend and global bonds had tended to favour active management, whereas a passive approach has historically proved more effective within the world large-blend cohort.

“At times, the excess returns and success rates appear balanced, but the internal dispersion of returns can vary substantially,” it said. “As such, uninformed selection decisions can lead to materially different outcomes, posing a higher risk in segments like emerging markets, but with less severe consequences in areas such as Australian real estate.”

“Overall, passive strategies continue to demonstrate consistently higher survivorship rates compared with active peers,” it said.

“Even in categories where active managers exhibit stronger success rates, lower survivorship can significantly diminish the likelihood of investors realizing those potential return advantages over the long term.”