Passive strategies continue to dominate, as new data from Morningstar underscores the mounting difficulty active managers face in generating alpha—especially in large-cap equities.
In the 12-month period ending June 30, just 31% of active U.S. equity managers outperformed their passive benchmarks, down from 44% in the prior year, according to Morningstar’s latest Active/Passive Barometer report.
The large-cap space remains the most challenging terrain for active managers. Only 8% of actively managed large-cap U.S. equity funds outperformed the average passive alternative over the trailing 10 years. Mid-cap and small-cap active strategies performed slightly better, with 18% and 25% respectively beating their passive peers over the same period. The data reinforces the persistent headwinds active managers face in efficient markets with high liquidity and analyst coverage.
Morningstar called out active large-growth funds in particular, noting that the category has been especially poor at delivering value to investors. Investor attrition has been significant—nearly 65% of active large-growth funds operating two decades ago have shut down. Of those still standing, just 1% managed to outperform their average passive rival.
International equity managers fared better. From July 2024 through June 2025, 41% of global or foreign stock-pickers beat passive peers. While that’s a relatively stronger showing, it hasn’t been enough to retain investor assets or sustain product viability. Morningstar found that only 40% of active international equity funds survived the past decade—the lowest 10-year survivorship rate of any equity fund category analyzed.
On the fixed income side, traditionally viewed as friendlier terrain for active strategies, performance deteriorated sharply in the most recent period. Just 31% of active bond fund managers outperformed passive counterparts for the 12 months through June 2025—a 31-percentage-point drop from the previous year.
Despite the recent weakness, bond managers have seen better long-term outcomes. Over the past decade, 42% of active bond funds both survived and outperformed their average passive peer. Morningstar notes that the complexity and inefficiencies in the fixed income markets have historically created opportunities for skilled managers to generate excess returns. But those opportunities have proven harder to capitalize on in the current cycle.
For advisors, the implications are clear: the structural challenges of active management, particularly in large-cap U.S. equities, continue to justify client portfolio shifts toward lower-cost, tax-efficient passive vehicles. While active strategies may still add value in select areas—such as small caps, international equities, or fixed income—rigorous due diligence and a long-term orientation remain essential.
Morningstar’s latest findings also highlight the importance of survivorship as a metric. Many underperforming active funds don’t just lag—they disappear. Across most categories, the funds that remain over time are a self-selected group, further narrowing the universe of consistently successful managers.
The asset flow trends reflect investor sentiment. Passive funds overtook active in total assets at the end of 2023—a tipping point that signals a durable change in allocation preferences among both retail and institutional investors.
For RIAs and wealth managers, the data supports a more strategic use of active funds—potentially as satellite holdings in areas with higher dispersion or less market efficiency—while continuing to use passive strategies as the core building blocks of client portfolios.
