The Next Chapter in the Active vs. Passive Debate

An Update to our Analysis of Performance, Consistency and Persistence

The ninth iteration of “The Next Chapter in the Active vs. Passive Debate” in which we evaluate the efficacy of active mutual funds¹ in all 17 different categories during the ten-year period ended December 2025. Despite the unprecedented market environments captured in the recent iteration, and variations over time periods since the first edition of the paper in 2007, our primary observations have remained consistent over time.

The constituents of this analysis are all actively-managed strategies as defined by Morningstar. All passively-managed strategies that achieved ten-year track records are analyzed separately at the end of the paper.

Key Observations

• 92% of ten-year top quartile mutual funds were unable to avoid at least one three-year stretch in the bottom half of their peer group. This result is slightly higher than the median of the historical range of 83 to 92 percent in our past eight editions, and equal to our 2024 edition. The higher percentage can be attributed to Value Equities, Small Cap, and Emerging Markets asset classes, which in total represent a high percentage of the funds analyzed.
• 62% of ten-year top quartile mutual funds were unable to avoid at least one five-year period in the bottom half of their peer group. This result is near the middle of our historical range of 54 to 63 percent in our past eight editions, and up from 58 percent we observed in our last edition.
• Top quartile mutual funds with three-year stretches in the bottom half of their peer group spend, on average, six consecutive quarters below the median. Top quartile funds spent an average of 25 percent of rolling three-year periods in the bottom half of their peer groups, slightly above 23 percent in our previous edition.
• Owning the 29th percentile mutual fund in all 17 each category would have matched the weighted index return for a 70 percent equity and 30 percent fixed income portfolio during the ten-year period. This result is lower than the historical range of 34 to 52 percent in our past eight editions, and lower than the 34th percentile we observed in our last edition. Thus, the trend that more effective manager selection is required to match the weighted index return continues to persist, including during the recent ten-year period.
• Consistent with previous editions, several asset classes succeeded in generating outperformance in the top quartile of their peer group and in some instances the median manager did as well.
• Investing passively does not completely insulate investors from volatility in relative performance compared to active peers, and in some asset classes guaranteed sub-par results over the most recent ten-year period.
• Falling prey to natural human behavioral tendencies during the manager selection and termination process generally leads to failure. Investors need to make a concerted effort before investing to understand a manager’s investment process, sub-style, and whether they possess competitive advantages over their peers that improve the odds of ranking in the top quartile over longer periods. We continue to believe this allows investors to develop the confidence, and more importantly, the patience required for long-term success.

¹Distinct portfolio share classes (only) from Morningstar mutual fund database as of December 2025. Not corrected for survivorship bias. All data in all exhibits is sourced as Morningstar and Fiducient Advisors analysis unless stated otherwise.