Actively managed mutual funds and ETFs slightly outperformed their passive fund peers from July 2023 through June 2024, according to Morningstar’s latest semiannual U.S. Active/Passive Barometer. The outperformance was the strongest among active bond managers.
Morningstar found that over the 12 months ending in June, 51% of active mutual funds and ETF strategies survived and outperformed the average passive funds in their Morningstar category, which the firm’s researchers called “basically a coin flip.” Over 10 years ending in June, actively managed funds did even worse, with just 29% of them surviving and outperforming their indexed peers.
However, when it came to active bond funds, two out of three outperformed their average passive counterparts over the year ending in June, including a 72% success rate among intermediate core-bond funds. Morningstar credited those bond portfolios’ shorter duration and a greater appetite for credit risk in an environment of higher interest rates and narrower credit spreads.
Actively managed real estate funds also did well, with a 66% success rate over the past year.
Active funds focusing on large-cap and small-cap equities performed in line with the average, with a 53% and 52% success rate, respectively. However, active funds focused on mid-cap stocks were successful only 36% of the time.
Despite this, Morningstar found that investors do an excellent job picking well-performing active funds. Over the past decade, the average dollar invested in actively managed funds outperformed the average dollar invested in passive funds in 19 out of the 20 categories it examined.
The Morningstar U.S. Active/Passive Barometer looks at roughly 8,326 funds with $21 trillion in assets. These funds represented 72% of the U.S. fund market at mid-year 2024. The Barometer evaluates active funds against a composite of passive funds.
