Key Takeaways
- The one-year success rate of active equity fund managers dipped to a low of 23.1% in February after Trump’s inauguration.
- Fixed income remains an area where active management has a higher chance of succeeding.
- Over long periods, the overall rate of success of active managers remains low.
The first half 2025 will likely be remembered as the time when the long-held notion of US exceptionalism began to crack. US President Donald Trump’s trade tariffs policy and fiscally expansive budget plans sent shock waves through financial markets at a time when investors were already worrying about the excessive sector concentration risk in the US equity market.
The US dollar index, measuring the value of the US currency against a basket of US trade partner’s currencies, fell by 10.7% in the first half 2025. This prompted a realignment of geographical exposures in portfolios away from US assets in favor of European and emerging markets.
Morningstar’s European Active/Passive Barometer report for the first half 2025 shows that the one-year success rate for active equity managers hovered around 29% amid market volatility after Trump’s inauguration.
The Active/Passive Barometer is a semiannual report that measures the performance of active funds against passive peers in their respective European, Asian, and African Morningstar Categories. It spans around 30,500 unique active and passive Europe-domiciled funds that account for about half the assets of the European fund market.
Against the backdrop of uncertainty, volatility and swift rebalancing of portfolios, active managers’ weighted average success rate over one year for the 38 equity categories examined in the report stood at 29.0% in June, broadly unchanged from 28.8% at the end of 2024 and 29.2% a year earlier in June 2024.
Equity Active Managers Hit Hard by Market Instability After Trump’s Inauguration
However, these comparisons belie the impact of market volatility during the first half 2025. The one-year success rate of active equity managers dipped to a low of 23.1% in February before slowly climbing back up to close the gap with the rate at the end of 2024. This would seem to indicate that the initial bout of market instability after Trump’s inauguration hit hard and caught many managers off guard.
Market volatility led active managers in the US large-cap blend equity category to underperform, with their one-year success rate falling to 20.8% in June. Eurozone equities gained from reallocations away from the US dollar and supportive local fiscal measures, particularly increased defense spending.
Over longer periods, the overall rate of success of active equity managers remains stubbornly low. In fact, the 10-year rate came in at 13.5% in June, one of the lowest levels of the past decade, down from 14.9% at the close of 2024 and 16.3% in June 2024.
This, however, doesn’t mean that all categories show the same pattern. Generally, active managers tend to achieve higher success rates the lower they go into the market-cap spectrum, in categories where the passive composite suffers from structural concentration in specific sectors, or where indexes are very top-heavy in a small number of stocks.
Fixed Income a Fertile Ground for Skilled Active Managers
Much like their equity counterparts, the US was a key focus of attention for global bond markets due to rising concerns about the impact of Trump’s fiscal policy on the sustainability of the US debt burden. All the while investors kept a close look at monetary policy to gauge the chances of further rate cuts amid growing risks of an economic slowdown. The increase in defense budgets by European governments also weighed on valuations of sovereign debt. Meanwhile, UK gilts had to contend with confusion around the government’s budgetary plans.
The active managers’ weighted average success rate over one year for the 21 fixed income categories examined came in at 50.1% in June. This was down from 54.1% at the end of 2024 and 59.4% a year earlier in June 2024.
Success rates declined in the EUR (32.1%) and GBP (53.3%) government bond categories, while global bond managers saw improved performance (69.8%), likely benefiting from relative value and currency shifts away from a weaker US dollar.
Over three and five years, the average rate of success for active bond managers has hovered around 50%-55% for the past 12 months. The postpandemic environment, a period of heightened monetary policy activity, has proved fertile terrain for skilled active managers. However, eventually the impact of fees feeds through. Over 10 years, the average success rate falls to 29.0%, still one of the highest levels recorded in the past decade.
This article is taken from the EMEA Active/Passive Barometer: Midyear Update 2025 written by Jose Garcia Zarate and Eugene Gorbatikov.
