Passive investment strategies have continued to outperform active funds across most Australian and global categories, according to Morningstar’s latest Australia Active/Passive Barometer.
The study, which covered more than 800 open-ended and exchange-traded funds across nine categories, assessed how the average dollar invested in active strategies fared against its passive counterpart over three-, five-, and 10-year periods to June 2025.
Morningstar’s analysis revealed passive funds have successfully maintained higher success and survivorship rates in most sectors.
The report noted that “passive strategies outperformed their actively managed counterparts across the majority of the segments over the past year, contributing to a decline in 10-year trailing success rates across most categories”.
However, top-quartile active managers in eight of the nine categories still generated positive excess returns over the 10-year period, underscoring the importance of careful manager selection over the long term.
The findings indicated that certain areas remain conducive to active management.
“Categories such as Australia mid/small-blend and global bonds tend to favour active management,” the report stated.
In contrast, passive strategies continued to dominate the world large-blend category, where the breadth of global indices and efficiency of US markets presented a formidable challenge for stockpickers.
In Australian equities, large-blend managers faced headwinds, underperforming passive peers by an average of 2.5 per cent in the year to June 2025.
Meanwhile, the equity income category was similarly difficult for active investors as value-tilted passive funds benefitted from market trends, weighing on long-term success rates.
Moreover, the report highlighted that mid- and small-cap Australian managers have been a bright spot, with active funds outperforming by 3.3 percentage points annually over 10 years and posting a 96 per cent success rate.
Morningstar attributed this to “the ability to exploit pricing inefficiencies in relatively underresearched segments of the market”.
Active management also continued to add value in fixed income as Australian bond managers outperformed passives across all evaluation periods, aided by flexible duration and credit positioning.
In global bonds, active funds achieved a 100 per cent success rate over both five- and 10-year periods, and though survivorship remained lower, this presented an ongoing challenge for investors seeking sustained performance.
Elsewhere, performance in real estate was mixed. While Australian property funds have struggled to keep pace with benchmarks due to the market’s narrow structure, global real estate strategies recorded moderate active outperformance, with a 10-year success rate of 50 per cent.
Morningstar noted that currency effects played a significant role in results, with unhedged global REIT exposures outperforming their hedged counterparts by up to three percentage points annually.
Zunjar Sanzgiri, senior analyst for manager research ratings at Morningstar Asia-Pacific, said the results highlighted a continuing “balancing act” between active and passive strategies.
While the average passive investor has enjoyed more consistent outcomes, top-performing active managers continue to demonstrate their worth in select, less efficient markets.
The study concluded that, despite passive funds’ growing dominance, active management still holds meaningful opportunities, particularly in complex or under-researched market segments where skill and flexibility can make a measurable difference.
