Only 20% of actively managed funds outperform over the long term.
That seems to be the consensus. It’s not a surprise but it’s stark.
I looked at two recent research pieces on this topic. AJ Bell in the UK reported that only 21% of active funds outperformed their passive counterparts over a 10 year period. This dropped to 17% over the last 5 years. Admittedly there were shorter time periods when the numbers were better.
Morningstar numbers paint the same picture. The one-year success rate of active equity managers came in at 28.4% at the end of June 2026, down from 30.5% at the close of 2025. and slightly below the 28.7% registered a year earlier in June 2025. Over longer periods, the rate of success declines sharply. In the three years to the end of June 2026, it stood at 20.3%, declining to 15.2% over five years and to 11.9% in the 10-year period.
The outcome is better in bonds. The one-year success rate for active bond managers came in at 46.8% at the end of June 2026, down from 54.8% at the close of 2025. Longer term, the bond comparisons vary. The three-year success rate stood at 51.1% at the end of June 2026, going down to 47.5% over five years.
So should investors abandon active funds?
No.
Full disclosure: I come at this as someone who’s career has been firmly on the active side of the fence. But I think there are several factors to consider at play in the published data.
Closet-indexing is very prevalent on the “active” side. I did a piece last year (it’s on the blog) looking at some of the top active European equity funds which showed a huge and common overlap with the largest stocks in the benchmark. While the funds are labelled active and influence the numbers, they are in effect indexed. So after fees, outperformance is practically impossible.
Fees themselves are worth looking at. Some active funds are charging a lot more than their indexed counterpart leaving them with a higher hurdle in terms of superior performance. Morningstar research shows that active funds in the cheaper quintiles have higher odds of succeeding in the long run.
Pick your fight. Active managers tend to achieve higher success rates within mid- and small-cap equity categories or Emerging Markets compared with those focusing on large-cap Developed Market stocks. Active performance in sectors such as large-cap US equities is phenomenally poor.
As we’ve seen, it’s quite a different picture in fixed income, and this applies across the spectrum of sovereign and corporate bonds. This reflects the fact that indexing is less efficient for bond markets than for equity markets.
Bottom line:
There’s a lot of noise in the data.
If you’re going active, go truly active. Check that the active share is meaningful, though it’s no guarantee of out-performance
The odds are more in your favour in certain sectors and assets.
Don’t pay active fees for index performance.
An expensive fund may not be a better fund.
