Active funds underperformed passive peers across much of Europe in 2025 as volatile markets and shifting investor preferences boosted demand for low-cost index strategies, according to Morningstar’s data.
The report, which compared active funds with passive counterparts across European, Asian and African Morningstar categories, found European investors rotated away from US equities toward European and emerging markets during the year while increasing allocations to passive vehicles.
Across 39 equity categories, the one-year success rate for active managers stood at 31.2% at end-2025, according to the report. Longer-term results deteriorated sharply, showing the challenges posed by concentrated markets and strong index performance.
Eurozone equities were lifted by domestic inflows and strong gains in Italy and Spain, helping passive funds outperform. Active eurozone large-cap managers posted a 17.3% one-year success rate and just 3.8% over 10 years. UK stocks surged in late 2025, but active large-cap managers achieved 28.0% over one year and 10.2% over 10 years.
A weaker US dollar and tech rallies in Korea and Taiwan boosted performance, pushing the one-year success rate to 49.6%. The 10-year rate reached 19.6%, higher than in developed markets.
Active bond managers benefited from shifting yield curves, higher long-term yields and tight corporate spreads. Across bond categories, the one-year success rate reached 55.8%, within the typical 50–60% range. Over 10 years, it fell to 31.5%, reflecting the fee advantage of passive funds.
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Government bonds remained difficult for active managers over time, with 10-year success rates of 16.3% in euro markets and 9.8% in sterling. Investment-grade corporate bonds fared better, with one-year success rates above 50% and 10-year rates of 44.3% in euros and 36.2% in sterling.
High-yield bonds were tougher for active managers. The one-year success rate for euro high yield fell to 25.5%, the lowest in a decade, as stronger credit quality, private financing and broader ETF benchmarks reduced chances to outperform.
“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,” said Eugene Gorbatikov, analyst at Morningstar. “Active managers are typically more successful in mid- and small-cap equities than large-cap stocks. They also perform better where passive funds show structural bias or concentration in specific sectors or stocks.
