Active funds continue to underperform passives in spite of the Trump tariff increase

Active funds are marketed as having the potential to beat passive ones, but in the long run, they are falling to all-time lows

Even though they are marketed as a way to outperform the overall market in terms of returns, active funds still perform worse than their passive counterparts.

In the ten years ending June 30, 2025, only 30% of active funds outperformed their passive counterparts, according to AJ Bell's most recent Manager versus Machine report. That is a record low since the data was first measured by AJ Bell.

Stock markets experienced significant volatility in the first half of the year due to the effects of Trump's tariffs. Since 42% of active funds have outperformed passive equivalents in 2025 thus far, a significant improvement from the 35% that did so in the first half of 2024, it seems that this has given competent active managers a chance to prove their value.

The head of investment analysis at AJ Bell, Laith Khalaf, stated, "It appears that Donald Trump has accomplished what years of effort and sweat have not been able to accomplish, namely some measure of outperformance from global active funds."

Nonetheless, it is still true that active funds have generally performed much worse than cheaper index funds.

Slightly more than a quarter of active funds26 percenthave outperformed passive alternatives over the past five years.

Which industries saw better results from active funds than passive ones?

Although the aggregate data indicates that active funds have generally underperformed passive funds, this was not always the case across multiple industries.

The vast majority of active funds with a global focus beat their passive counterparts during the first half (H1) of 2025. However, overall, active funds that invested in Japan did much better than passive funds: 68 percent of active funds that invested in Japan did better than their passive counterparts.

In the past decade, Japanese funds that are actively managed have outperformed their passive counterparts by 50%.

"Global active managers have achieved a win rate of over 50% against the passive machines for the first time since we introduced the Manager versus Machine report in 2021," Khalaf stated. In the five years leading up to December 2021, this metric's previous peak was 40%.

In contrast, global emerging market funds experienced the most active outperformance of the past decade, with a 56 percent return.

But according to the data, over the last five years, the majority of active funds have outperformed passives in every IA sector.

Which industries had the poorest performance from active funds?

It has been a difficult six months for Asia fund managers if the impressive results from active funds with a focus on Japan are taken out of the equation. Just 11% of active funds in Asia Pacific outside of Japan have outperformed the average passive fund thus far this year.

Only 29% of UK active funds outperformed the average passive fund, indicating that active managers with a UK focus have also had difficulty.

"The underweighting of large-cap active managers in comparison to a plain vanilla index tracking fund, as well as the fact that mid- and small-cap stocks are trailing the FTSE 100's big blue chips, are the main causes of this poor performance," Khalaf stated.

Are active and passive funds superior?

When taken at face value, AJ Bell's data seems to indicate that passive funds are a better investment than active funds. This isn't always the case, though.

For one thing, the data only looks at how many active funds do better than passive ones. The total relative turns of each style are not always reflected. Professional active management has the ability to produce returns that are significantly higher than those of the typical passive fund in any industry.

Matthew Spencer, head of UK retail at Orbis Investments, stated that investors can increase their chances of reaching their intended investment outcome by looking for managers who have proven abilities in both stock selection and creating a portfolio that actually deviates from the benchmark.

"Passive funds can have hidden risks in today's concentrated markets, so that is especially crucial.

In the end, depending on their unique investing objectives and situation, individual investors must choose between active and passive funds. Learn more about investment funds for beginners if you're a novice investor and not sure which funds to include in your portfolio.