Key Takeaways
- Passively managed funds continue to outperform in large‑cap developed equity categories, the Active/Passive Barometer shows.
- Active managers enjoy meaningful opportunities in fixed income, emerging markets, and smaller-cap equity segments.
- Costs are a crucial factor, with low‑fee active funds the most likely to succeed against passive rivals.
Morningstar’s 2025 Active/Passive Barometer report, which takes a comparative look at nearly 32,000 active and passive funds domiciled in Europe, shows a clear duality in the fund management coverage. While active management flourished in fixed income and in some pockets of equity coverage, like emerging markets, structural challenges remained greatest in large-cap developed equities, where passive management ruled.
For investors, the findings of the 2025 report reinforce the importance of taking into consideration costs, category specific expectations, and time horizons, when it comes to choosing between active and passive strategies. Across asset classes, fees play a key role in determining success over the long run. Active funds in the cheapest fee quintiles consistently delivered higher long-term success rates than their more expensive peers.
Equities: Actively-Managed Funds Continue to Struggle in Large-Cap Markets
2025 was a year of two halves: Unexpected uncertainty and weakness in the first half, created by US President Donald Trump’s trade policy, was followed by a general rebound in the second half the year.
One constant though was the notion that having too much exposure to US assets was not desirable, not least considering the weaker US dollar, down by 9.4% over the year.
Overall, the European fund flows story in 2025 was one of rebalancing: away from US equity, and into European and emerging market equity. It also showed investors favoring passive options.
The one‑year success rate for active equity managers in the 39 categories analyzed was 31.2% in 2025, up from 29.2% in 2024, but still within the 25%—35% range that has persisted since 2022. These are low values by historical standards, but this has been a period of high concentration in equity markets, one where active managers have struggled to swim against the tide. Over longer horizons, the success rate falls sharply, hitting just 11.4% over 10 years.
Large-cap developed equity remains the most difficult area for stock-pickers, despite a slight pickup in short-term success rates in 2025 in some categories. For example, active managers in the US large‑cap blend category achieved a one-year success rate of 36.8% in 2025, up from 30.2% in 2024. However, over 10 years it falls to just 5.1%; routinely one of the lowest of all equity categories.
Active peers in the eurozone large-cap equity category had to contend with the strong flows-driven momentum propelling non-US dollar-based stock markets in 2025. This tailwind worked in favor of passive funds. The one-year success rate was a poor 17.3% in 2025, though slightly up from 15.0% in 2024. Over 10 years, it was just 3.8%.
UK equities had a good run in 2025, with the Morningstar UK All Cap Index up 24.8%. Despite this, UK equity allocation remained out of favor with investors. The one-year success rate for active managers in the UK large-cap equity category stood at 28.0% in 2025, down from 34.3% in 2024. The success rate for the 10-year period was 10.2%.
Active funds’ bright spot within equities lay in emerging markets, where structural inefficiencies and country dispersion created opportunities for skillful managers. The global emerging‑markets category delivered a one‑year success rate of 49.6%, up from 32.8% in 2024, while the 10‑year figure—while still modest at 19.6%—stood above developed‑market equity categories.
Active success was also more frequent in mid‑ and small‑cap categories, whereas passive indexes tend to have sector or concentration biases.
Fixed Income: A More Supportive Environment for Active Managers
In contrast to equities, fixed income offered fertile ground for active managers. The one‑year success rate across the 29 bond categories analyzed was 55.8%, up from 54.5% in 2024 and within the 50%—60% range seen in recent years. The combination of falling interest rates, elevated long‑dated yields, and sector‑specific dispersion provided opportunity for duration, curve, and credit positioning to add value.
Government bond categories posted strong one‑year success rates—43.6% in the euro category and 45.2% in the GBP category—but their long‑term performance remained muted, reflecting the difficulty of outperforming low‑cost passive trackers in highly liquid sovereign bond markets. 10‑year success rates were 16.3% in EUR terms and 9.8% in GBP.
Corporate‑bond categories showed higher potential for active value. One‑year success rates were 50.8% in EUR terms and 52.7% in GBP. The 10‑year rates of 44.3% in EUR terms and 36.2% in GBP, were among the highest long‑term outcomes in the fixed‑income coverage.
The most surprising development was in high‑yield funds. Historically a stronghold for active managers, the euro high‑yield category saw the one‑year success rate fall to 25.5%, the lowest level in a decade. Several factors were at play here. A rising number of companies in the more distressed segments have been finding funding in private markets, rather than publicly. For active managers, this means a narrower coverage to hunt for yield. High-yield bond indexing has also become more representative of the asset class, and is now likely a hurdle for active managers to overcome.
Emerging markets debt stood out as the strongest area for active management, fueled by currency effects and dispersion across countries. One-year success rates reached 60% in hard‑currency EM debt and 73.7% in local‑currency EM categories.
