2025 was marked by volatility and European investors shifted from the US to European and emerging-market equities, with a strong move toward passive investments. Morningstar today published its European Active/Passive Barometer Full-Year 2025 report, which measures the performance of active funds against passive peers in their respective European, Asian, and African Morningstar Categories.
“Irrespective of asset class, a fund’s survival is closely tied to its success, with most active funds failing due to their short lifespan caused by underperformance. Higher fees relative to passive funds contribute to weaker net outcomes. Our analysis indicates that lower-cost active funds are more likely to succeed over time,” explained Eugene Gorbatikov, analyst at Morningstar. “Active managers are typically more successful in mid- and small-cap equities than in large-cap stocks. They also perform better where passive funds show structural bias or concentration in specific sectors or stocks.
Key Takeaways include:
- Active equity managers struggled to outperform due to market concentration: At the end of 2025, active equity managers in 39 equity categories had a one-year success rate of 31.2%, up from 29.2% in June 2025 and at the close of 2024. This rate fluctuates but remained between 25% and 35% from 2022 to 2025. These are low values by historical standards, but active managers have struggled with high global market concentration. Over longer periods, the rate of success declines sharply. In the three years to the end of 2025, it was 19.9%, declining to 15.4% over five years and to 11.4% in the 10-year period.
- Conditions allowed active bond managers to add value through duration and sector calls:Despite falling interest rates, long-term bond yields stayed high in most regions because of fiscal concerns, while short-term yields reflected monetary policy changes, resulting in steeper yield curves. Corporate bond spreads remained tight, showing strong demand and fundamentals, with investors favouring credit ratings in the investment-grade and high-yield segments.
- Factors like monetary policy normalisation and credit risk volatility have supported active bond managers, creating challenges for passive funds. At the end of 2025, the one-year success rate for active bond managers across 21 categories was 55.8%, up from 49.9% in June 2025 and 54.5% at the end of 2024. Similar to equity counterparts, the one-year success rate for active bond managers has stayed remarkably rangebound in the past five-year period. But in this case, the range, at a broad 50%-60%, sits at high values for historical standards. However, over longer periods, active managers’ success rates decline as benefits of compounding low fees charged by passive funds kick in, but even on a 10-year basis, it stood at a very respectable 31.5%
Equity Takeaways:
- Eurozone equity markets showed resilience in the second half of 2025, with most individual country benchmarks, particularly Italy and Spain, closing the year at multiyear highs. Sentiment was supported by inflows from domestic investors diversifying from the US. Likely because of this strong tailwind behind market indexes, passive funds had the upper hand. The one-year success rate of active managers in the eurozone large-cap equity category was a poor 17.3% at the end of 2025, down from 23.2% in June but slightly up from 15.0% at the close of 2024. Over the 10-year period to the end of 2025, the success rate was a pitiful 3.8%.
- UK equities had a good run in the second half of 2025.The Morningstar UK All Cap Index closed 2025 up 24.8%. Despite the attractive valuations, UK equity allocations remain firmly out of favour with investors. The one-year success rate for active managers in the UK large-cap equity category stood at 28.0% at the close of 2025, down significantly from 46.5% in June and 34.3% a year earlier. The success rate for the 10-year period to the end of 2025 was 10.2%.
- Emerging-markets equities benefitted from the weaker US dollar and rallying technology companies in markets like Korea and Taiwan.Sentiment was aided by easing tensions between China and the US on tariffs. The one-year success rate for active managers in the global emerging-markets equity category was 49.6%, up from 30% in June and 32.8% at the close of 2024. Over the 10-year period, the success rate stood at 19.6%, underscoring that this is an area where active managers typically have more levers to pull relative to developed equity markets.
Fixed Income Takeaways:
- Government bonds remain the area in fixed income where an active approach is more at risk of underperforming passive peers over long periods. This is particularly so in the case of single-country categories, where, other than duration, there is limited scope to add value by other means. At the close of 2025, the 10-year success rate in the euro government-bond category stood at 16.3%, while for their peers in the GBP category, it came at 9.8%.
- Active managers in investment-grade corporate bonds had a good 2025.The one-year success rate in the euro corporate bond category came in at 50.8%, while that for the GBP corporate bond category, it was 52.7%. Although high, they dropped from a year earlier – 62.2% for the euro category and 65.7% for the GBP category. In any case, credit remains an area where active managers have more levers to pull relative to a standard index-tracking approach. At the close of 2025, the 10-year success rate in the euro corporate bond category stood at 44.3%, while in the GBP category, it came in at 36.2%.
- Active high-yield managers have been having a tough time by historical standards.The one-year success rate for active managers in the euro high-yield bond category stood at 25.5% at the close of 2025, the lowest level in the past decade. Success rates over longer periods have also trended downward. Recently, the high-yield bond market has shifted toward higher credit ratings, as distressed companies increasingly secure funding privately. This limits opportunities for active managers to find yield. Meanwhile, increased liquidity and transparency, largely due to ETFs, have given rise to new, broader high-yield bond indexes that better reflect the asset class and pose tougher benchmarks for active management.
The full report can be found here.
