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Morningstar Report Shows Recent Gains for Actively Managed Funds but Dim Long-Term Prospects

Morningstar’s semiannual report on the performance of U.S. active funds against passive peers in their respective categories finds that actively managed funds overall have failed to survive and beat their benchmarks, especially over longer time periods. The Morningstar Active/Passive Barometer reviewed approximately 3,500 unique active and passive U.S. funds that account for approximately $10 trillion in assets, or about 60% of the U.S. fund market. Some key takeaways from the report:

  • The average dollar in passively managed funds typically outperforms the average dollar invested in actively managed funds.
  • When compared with the 12-month period ended June 30, 2016, active funds’ success increased substantially in 10 of the 12 categories Morningstar examined in the year ended June 30, 2017. For example, the one-year success rate among active U.S. equity funds increased substantially relative to year-end 2016.
  • About 49% of active U.S. stock funds beat their composite passive benchmark in the 12-month period ended June 30, 2017, versus 26% for the year ended Dec. 31, 2016.
  • Funds with a value bent witnessed a sharp increase in their one-year success rate. Active funds in the large-, mid-, and small-value categories had a combined success rate of 57% relative to their passive peers over the past 12 months.
  • More than 80% of active funds in the intermediate-term bond category survived and outperformed their composite index in the 12-month span ended June 30, 2017.