Fewer Active Managers Beat Index Funds Last Year

Active Managers Struggle to Keep Up with Index Funds

In a recent report, Morningstar found that only 38% of actively managed mutual funds and exchange-traded funds (ETFs) beat their passive counterparts in 2025, down from 42% in 2024 ^[2]. This trend suggests that investors are increasingly turning to index funds, which offer lower fees and more consistent returns.

The Rise of Index Funds

Index funds have become a popular choice for investors seeking to minimize costs and maximize returns. By tracking a specific market index, such as the S&P 500, index funds offer a low-cost and efficient way to invest in the market. In contrast, actively managed funds require a team of professionals to research and select individual stocks, which can lead to higher fees and lower returns.

The Impact on Active Managers

The decline of active managers is a significant trend in the investment industry. As more investors turn to index funds, active managers are facing increased competition and pressure to deliver strong returns. This has led to a shift towards more passive investment strategies, with many active managers now offering index funds or ETFs as part of their product lineup.

Conclusion

The rise of index funds is a significant trend in the investment industry, with more investors turning to these low-cost and efficient investment options. As active managers struggle to keep up with index funds, it's clear that the investment landscape is changing. Investors should carefully consider their investment goals and risk tolerance before making a decision.

Sources

[1] Epstein files: Larry Summers to resign as Harvard professor
[2] Fewer active managers beat index funds last year. Think of them as portfolio 'teammates,' not 'rivals,' CFP says