Only 13% of actively managed US large-cap equity funds outperformed comparable passive funds during the decade through June, the Wall Street Journal reported, citing Morningstar data based on returns after fees.
Performance improved over the 12 months ended June 30, though just 27% of active large-cap funds beat their passive alternatives.
The weak record has continued despite fund managers arguing that higher interest rates and artificial intelligence have created favourable conditions for stock selection.
Performance gaps between individual stocks in the same index have risen to their highest levels in decades, theoretically giving active managers more opportunities to identify winners and avoid laggards.
Yet returns for the S&P 500 and Nasdaq 100 remain driven by a small number of highly valued technology companies.
The 10 largest companies in the S&P 500 now represent more than 40% of the index, the highest concentration since the 1960s, according to Dow Jones Market Data.
Many active managers are reluctant to match that concentration due to the risk of placing such a large share of a portfolio in a single sector or investment theme. This can leave them trailing benchmarks when the largest technology stocks continue rising.
The performance gap is accelerating investors’ move from actively managed mutual funds toward lower-cost, more tax-efficient exchange-traded funds.
Passive US funds first matched active funds in total assets in 2020 and now hold almost twice as much money, according to the Investment Company Institute.
Low-cost passive ETFs are on course to attract a record $1 trillion in net inflows this year.
Active managers have achieved better results in fixed income. About 66% of intermediate core bond funds outperformed their benchmarks over the past year, and a majority have done so for three consecutive years.
State Street Global Advisors said investors could use low-cost ETFs for broad equity exposure and direct their active-management budgets toward areas offering better odds of outperformance, such as bonds.
