Financial advisors and other investors have, by and large, been choosing passive funds over active management for decades, thanks to their lower cost and the difficulty of beating an index.
But a new working academic paper suggests one frequently cited comparison may overstate how often active managers fail to beat their passive peers.
The Active Managers Council of the Investment Adviser Association, an advocacy group for fund companies that manage vehicles of both types, commissioned and released the study examining the S&P Dow Jones Indices’ S&P Indices Versus Active (SPIVA) scorecard last month. The results are a signal to advisors and their clients to “look at the scorecards critically” when deciding between active and passive funds, Karen Barr, the CEO of the association, said in an interview.
“Active and passive both have an important place in investors’ portfolios, and it’s important to look at the actual investors’ experiences when analyzing what is best for your clients,” she said, stating that the IAA supported the research without pushing for specific findings.
Weighing one calculation against another
That SPIVA scorecard is a metric stemming from a formula that “makes several choices that systematically understate the performance of active funds,” the study said.
The numbers suggesting that active returns do not surpass their benchmarks fall drastically “after adjusting those choices to better reflect the actual investor experience,” wrote Timothy Riley of the University of Arkansas, K.J. Martijn Cremers of the University of Notre Dame and Jon Fulkerson of the University of Dayton.
The authors concluded that SPIVA’s estimates had overstated the underperformance of actively managed funds. Using data from 2024, they weighted the calculations by fund assets, comparing active vehicles to their passive equivalents and pulling in the performance of liquidated funds prior to their exit. Under that rubric, 55% of active U.S. equity funds underperformed passive stock vehicles in the past 20 years, compared to the finding of 92% by the SPIVA scorecard. And they found a more pronounced disparity in bond funds, with 37% coming in below a passive peer during the last decade.
Not the only scorecard on the street
To be sure, investors have largely picked passive funds, which research firm Morningstar said first topped active vehicles in assets two years ago. Morningstar’s “Active/Passive Barometer” reported that only 38% of active mutual funds and ETFs beat their passive peers in 2025 returns, with a smaller portion (21%) surpassing passive vehicles over the last decade.
“Recent data show that passive strategies continue to dominate investor demand, capturing the majority of new inflows across key asset classes, particularly in U.S. equity funds,” Morningstar reported in April.
Reframing the question
The authors of the new study admit that investors have been voting in droves with their wallets for passive vehicles, to the tune of $4.7 trillion in outflows from active mutual funds in the last two decades. Yet they argue that the narrative around passive vehicles’ apparent overwhelming victory may be missing some nuances.
“Our reframed question — what percentage of active fund assets underperform equivalent passive funds? — is more relevant for investors seeking to understand the historical performance record,” they write.
Members of the Investment Adviser Association created the council of active managers within the organization about seven years ago as a way “to do research and make sure people have accurate information about active and passive management,” Barr said.
