Stock pickers trail index funds over a decade

About 28 percent of actively managed U.S. stock funds that rely mainly on a manager’s judgment beat their benchmarks over the 10 years ended Sept. 30, according to an analysis by investment research firm Morningstar.

Funds that pick stocks by formula did better still. About 44 percent of these systematic active funds topped their benchmarks over the decade, ahead of both kinds of index fund the analysis examined.

What separated them, wrote Jeffrey Ptak, managing director of research at Morningstar Research Services, was price.

“The cheaper a grouping was, the better its odds of success were,” he wrote in the Oct. 28 analysis. His advice to investors: “Start with cost, work your way from there.”

“The cheaper a grouping was, the better its odds of success were.”

Jeffrey Ptak, Morningstar

The debate this complicates

Morningstar has tracked the contest for years in its Active/Passive Barometer, and long-term results have favored index funds.

The mid-2026 edition, covering about 9,226 funds and exchange-traded funds with about $29 trillion in assets as of June 30, found a 25 percent 10-year success rate for active funds, according to InvestmentNews. One-year success rose to just over 40 percent, up 7 points.

Cost showed up there too. Over 10 years, the cheapest fifth of active funds succeeded 33 percent of the time, against 20 percent for the priciest fifth.

“Passive managers get to start at a big advantage by charging lower fees that they don’t have to earn back,” said Bryan Armour, director of passive strategies research at Morningstar. In Europe, where active equity funds had a 28.4 percent one-year success rate in the first half of 2026, Morningstar analyst Eugene Gorbatikov said fees “continue to be one of the biggest determinants of success.”

Ptak’s analysis is not a rerun of that work. Morningstar's analysis counts a fund as a success only if it survived and beat a composite of passive peers.

For U.S. large-cap funds, just 7 percent did that over the decade through December 2024. Ptak compared each fund with the index matching its Morningstar category and left out funds that have closed, so his rates and the barometer’s cannot be set side by side.

Cost tracked results

The fee gap was wide. Weighted by assets, the average cap-weighted index fund charged 0.05 percent a year, about one-twelfth of the 0.59 percent charged by the average discretionary active fund. Systematic funds sat in between.

Results followed fees.

Over three, five and 10 years, discretionary funds had the lowest success rate of the four groups, and systematic funds had the highest at every horizon from one year to 10.

Fewer than half of either index group beat its benchmark over 10 years. Ptak ties part of that to index differences.

A fund can track an index other than the one Morningstar uses as the yardstick.

The returns tell the same story.

Over the decade, the average discretionary fund trailed its benchmark by roughly 1 percentage point a year when every fund counts equally. Systematic funds trailed by about a tenth of a point. Weighted by assets, systematic funds came out slightly ahead, by roughly a quarter of a point a year. Lower fees, Ptak wrote, can “bend the odds in one’s favor.”

Risk and reward

Active managers often argue they protect investors better in downturns. The data did not bear that out.

Both types of active fund were slightly more volatile than index trackers over the decade, and their average worst peak-to-trough loss was slightly deeper. Adjusted for downside risk, the cheaper the group, the better it did against its benchmark, and cap-weighted index funds finished ahead.

“The juice sometimes isn’t going to be worth the squeeze.”

Jeffrey Ptak, Morningstar

Ptak’s case against the discretionary approach is partly about effort.

Because people steer those strategies, he wrote, “their imperatives, incentives, and tics become yours in a sense,” and he called it “almost unquestionable” that they take more work to research and monitor. He does not rule them out. “Sometimes that will work in your favor,” he wrote.

He argues the new labels also help investors who want something between the two poles.

Someone who wants an index fund’s breadth but dislikes pure cap-weighting could look at cheap systematic or strategic-beta funds, which “tend to strike a balance between pure indexing and full-blown active investing.”

Ptak is careful though to add caveats to these numbers.

“This is an admittedly basic analysis,” he wrote. “It’s limited to trailing periods as of Sept. 30, 2026, excludes dead funds, and doesn’t consider every possible dimension of risk and return.”

Sources

1. Jeffrey Ptak, Morningstar, Oct. 28, 2026
2. InvestmentNews, Aug. 12, 2026: mid-2026 U.S. Active/Passive Barometer
3. Wealth Management, March 20, 2025: year-end 2024 Barometer
4. ETF Express, Aug. 6, 2026: European Barometer, first half of 2026
5. Morningstar: Measuring the Performance of Active Funds Against Their Passive Peers