Active vs. Passive Funds: Performance, Fund Flows, Fees

Active investing strategies often come with higher expenses for manager skills, involvement, and specialized analyst teams. Over the past decade, inflows in the United States have tilted toward passive funds as investors seek out cost-effective and broad market exposure.

But some active funds are worth the premium in fees and expenses.

Based on mid-year 2025 data, Morningstar’s investment research assesses the long-term success rates of active funds compared with passive funds. Here are the categories where actively managed funds stood out and where they fell short.

For the full breakdown, download the free Active vs Passive Barometer report. Choose your edition:

• United States
• Europe
• China

In 2024, total assets in US passive mutual funds and ETFs narrowly surpassed those in active ones for the first time. Recent data reflects a bigger trend. As of October 2025, the gap between active and passive assets widened. Passively managed assets grew to over USD 19.1 trillion, while actively managed assets stood at USD 16.2 trillion.   

In Europe, active assets continue to dominate. By the end of September 2025, the total assets in active mutual funds and ETFs stood at around EUR 9.3 trillion, while passive assets totaled EUR 4.1 trillion.   

Passive funds in the US have attracted more inflows than active funds for the past decade, according to Morningstar fund flow data.

In Europe, the balance between active and passive inflows has been more volatile. Though active funds saw impressive inflows in 2017 and 2021, inflows into passive funds were higher between 2022 and the second quarter of 2025. In 2022 and 2023, active funds experienced outflows, but returned to inflows in 2024. The third quarter of 2025 was the first in four years where active inflows outpaced passive ones. It’s important to note that outside of the US, passive strategies only make up 29% of assets under management.

Our researchers used Morningstar’s comprehensive fund data to calculate a category’s success rate, or the percentage of active funds that survived and outperformed a composite of passive funds over time.

Why a composite?

This “benchmark” reflects the net-of-fees performance of investable passive funds. It factors expenses into analysis for a more parallel look at trends in active-fund success.

As of the end of June 2025, the report spans:

• Nearly 9,204 unique US funds with approximately $24 trillion in assets, or about 68% of the US fund market.
• Around 30,500 unique active and passive European funds that account for about half of the assets of the European fund market.
• 4,480 unique China funds that were alive at the start of the trailing one, three, five, or 10 years ended Dec. 31, 2024.

In the US, actively managed mutual funds and ETFs struggled mightily from July 2024 through June 2025. Just 33% of active strategies survived and beat their asset-weighted average passive counterparts, a drop of 14 percentage points from a year earlier.

Actively managed funds did little to change their long-term track record. Just 21% of them survived and beat their average indexed peer over the decade through June 2025.

The US large-cap market has been particularly challenging for active managers due to its high transparency and efficiency, which leaves little room to add value over representative indexes. Just 8% of them survived and beat their average passive rival over the decade through June 2025.

All three large-cap categories saw negative median 10-year excess returns for surviving active funds, and the distribution of excess returns skewed negative. That indicates the penalty for picking a poor active fund normally exceeded the reward for picking a good one.

In Europe, the overall rate of success of active equity managers remains stubbornly low over longer periods. 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, or 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.

A few other active fund categories in the US fell behind their passive counterparts in the last year:

• Real estate funds
• Large-cap funds
• Mid-cap funds
• Small-cap funds

In Europe, active fund categories that fell behind their passive counterparts include:

• Global large-cap blend equity funds
• UK equity income funds

Don’t declare passive investing the winner yet.

Active fund performance varies across investment categories and periods. In some regions, they remain the dominant approach in assets under management.

Active bond managers were hit hardest from June 2024 to June 2025. Across the three fixed-income categories included in the study, success rates plummeted 31 percentage points to 31% for the 12 months through June 2025. Active intermediate-core bond managers led the cohort with a 52% success rate, while active corporate-bond managers saw a paltry 4% success rate.

However, their European counterparts have found continued fertile terrain. The active managers’ weighted average success rate over one year came in at 50.1% in June for the 21 fixed-income categories examined. Over three and five years, the average rate of success for active bond managers has hovered around 50%-55% for the past 12 months

Money markets are another area where active managers perform particularly well, especially as the current crop of passive funds aren’t too hard to beat. Here, active managers can easily increase yield without compromising the short-term near-risk-free nature of the strategy. Historically, money markets have been quite prolific in the development of active ETFs. The one-year success rate of active managers in the EUR money market category stood at 68.6% in June 2025 and remains high on a three- and five-year basis, dropping to a still-high 43.8% on a 10-year horizon as the full effect of higher fees feeds through.

The global- and foreign-stock categories have been a bit kinder to active managers than US market segments. At 24%, foreign-stock funds’ 10-year active success rate measured up better than the 15% rate for active US stock funds.

And over the 12 months through June, active international stock strategies were a relative bright spot. Active funds in five foreign-only Morningstar Categories saw their collective success rate hold steady at 45% from the year before. Woes continued for active global large-blend funds, which combine foreign and domestic stocks, after declining 3 percentage points to a success rate of 22%.

In Europe, eurozone equities were among the top beneficiaries of the reallocation of geographical exposure away from US dollar assets after volatility in the United States market. But there were also local reasons that supported valuations, most notably the fiscal expansion plans to finance the increase in defense budgets.

Active managers in the eurozone large-cap blend category gained ground, with 23.5% beating their passive counterparts in the one-year period to June 2025. In the same category, long-term success rates for active managers remain low, with the average 10-year success rate being around 4.7%. Our research shows that European active managers tend to fare better in the mid-cap and small-cap equity categories compared to large-cap stocks.

The US Active/Passive Barometer report and its European counterpart helps professional investors calibrate the odds of succeeding with active funds in different categories. From there, how do you pick the winners to buy?

High tracking error and active share don’t guarantee superior performance but do offer one way for active funds to justify their fees. Some active funds closely replicate the asset weightings of an index fund, but at a higher price point.

Divide a fund’s active share or tracking error by its expense ratio and compare it to a custom benchmark or peer group.

This gives you one indicator of the difference between an active fund and its cheaper passive alternatives.

When evaluating active managers, our researchers consider factors such as the people managing the portfolio, their process, and whether the parent firm aligns its interests with investors.

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