The first half of 2025 presented a volatile market environment that active fund managers traditionally claim plays to their strengths. With Donald Trump’s return to the presidency causing significant shifts in currency markets, sectoral rotations, and bond market volatility, it seemed an ideal opportunity for active management to stand out. However, Morningstar’s European Active/Passive Barometer reflects a different reality. Despite the volatility, active equity managers had a one-year success rate of just 29%, barely changed from the previous year. The ten-year success rate was even lower, at 13.5%, one of the lowest in the past decade.
Active management’s potential was evident in certain areas. Some active managers did outperform, particularly in UK Large-Cap Equity and Global Government Bond categories. These managers capitalized on opportunities arising from currency fluctuations and relative value shifts. Nevertheless, the overall success rate for active equity managers dropped after the initial policy shocks of Trump’s inauguration, underscoring the challenges they faced.
Fixed income emerged as a relatively successful area for active management in 2025. Fixed income managers achieved a weighted average success rate of 50.1% by navigating the complexities of monetary policy, yield curves, and currency exposures. Still, this performance is tempered by the impact of fees, which erode long-term returns.
The belief that market volatility benefits active managers is widely held but not supported by empirical evidence. Over 25 years, studies have consistently shown that volatility does not favor active management. The S&P Dow Jones Indices’ SPIVA research highlights that active fund managers rarely outperform their benchmarks over extended periods, with high fees often negating any potential gains.
Some narrow exceptions exist where active management has shown value, particularly in small-cap and emerging markets, where inefficiencies are more pronounced. However, these represent niche opportunities rather than a broad endorsement of active management. The challenge remains distinguishing genuine skill from luck, with most active managers unable to sustain outperformance over time.
Despite the policy-driven volatility of 2025, the data suggests that passive strategies continue to offer better risk-adjusted returns after fees. Investors should cautiously approach active management, recognizing its potential value in specific areas but remaining aware of the broader trend of underperformance. The search for consistent active management success continues, but the evidence suggests it remains elusive.
