Active management ‘close to zero-sum game’

Mike Taylor

Managing Editor and Publisher

2 April 2026

As if Australian active managers weren’t already facing challenging times, the latest analysis from research and ratings house, Morningstar, is pointing to even greater challenges ahead.

Indeed, Morningstar has declared that it views active management as “close to a zero-sum game”.

The latest Morningstar quarterly Industry Pulse points to traditional active managers continuing to lose market share to passive vehicles such as exchange traded funds (ETFs) while the picture is a little better for those which have identified niche segments.

“Within active management, firms focused on conventional equity and bond offerings face persistent pressure, given that these strategies can be easily duplicated by passive products,” the analysis said. “By contrast, managers operating in more niche segments, such as private credit or specialized fixed income, are better positioned.”

It said that active managers need to justify high fees with performance and that, for some, this just isn’t happening.

“Traditional active managers continue to lose market share, with many still burdened by high fees that are hard to defend given lacklustre performance,” the Morningstar analysis said.

“In response to rising passive competition, active firms have brought their strategies to market through ETFs; however, passive ETFs continue to draw stronger flows, supported by their cost advantage.”

It said that against this background, competitive pressures are likely to persist, as passive giants such as Vanguard and BlackRock also provide active offerings, using their scale to compete more forcefully with active managers.

“We view traditional active management as close to a zero-sum game, where firms grow primarily by taking share from active competitors rather than consistently outperforming passive alternatives,” the analysis said.

“For the December quarter of 2025, average 12-month net flows across our coverage were negative 6% of managed funds^, broadly consistent with the prior two quarters. This compares with growth of 4.1% and 4.4% in the Australian and global markets, respectively, over the same period, indicating market share loss at the cohort level.”

“Traditional active managers face increasing consolidation pressures, with average and weaker performers at risk of losing assets or exiting the industry altogether,” it said noting that the rise of passive investing, offering low-cost index exposure, has left managers who struggle to outperform their benchmarks in a more difficult position.

“Attracting and retaining client assets ultimately requires consistent outperformance, which remains challenging to deliver in practice,” it said.