Index funds vs. actively managed funds
Most actively managed funds fall behind low-cost index funds over long periods, mainly because higher fees drag down returns.
Covers: Stock mutual funds and ETFs available to individual investors, mainly US large-cap funds where data are richest. This page summarises research and is general information, not personal financial advice.
3 free full reads left this month. Join or upgrade
The short answer
Evidence-backedOver long periods, most actively managed funds trail comparable low-cost index funds: around nine in ten US large-cap funds lagged the S&P 500 over 15 years in S&P's scorecards. The main reason is arithmetic: before costs active investors as a group match the market, so after higher fees they must lag it on average. Past winners rarely keep winning.123
- Evidence 13
In brief
After costs, the average actively managed dollar must earn less than the average passive dollar.2
Evidence-backedPast outperformance mostly doesn't persist once costs and market factors are accounted for.3
Evidence-backedSmall differences in fees compound into large differences over decades.5
Evidence-backed
At a glance
The picture in numbers
Live · updated just now
shorter windows
fewer lag
15 years
around nine in ten lag
The evidence behind it
5 sources- Other studies and data3
- Background2
When it was published
Newest from 2025
| Source | Kind | Year |
|---|---|---|
| SPIVA: S&P Indices Versus Active scorecards | Background | 2025 |
| The arithmetic of active management | Other studies and data | 1991 |
| On persistence in mutual fund performance | Other studies and data | 1997 |
| Understanding fees | Other studies and data | 2024 |
| US Active/Passive Barometer | Background | 2025 |
The community around it
- Contributions
- 0
- People
- 0
- Following
- 0
Nobody has added anything yet. Experience, evidence or a different view would show up here.
Before you decide
Which fits you?
Pick the situation closest to yours. Each answer says what it rests on.
If you're investing for the long term and don't want to research funds
The evidence favours broad, low-cost index funds as a default: most active funds trail them over long periods.12
Evidence-backedIf you're choosing an active fund anyway
Favour low fees; cheaper active funds have succeeded more often than expensive ones. Don't rely on last year's top performer.43
Evidence-backedIf you're comparing two funds with similar holdings
Compare total annual costs first; over decades, fee differences compound substantially.5
Evidence-backedThe full story · 3 chapters
01
What the scorecards show
AI summary:S&P's scorecards show most active funds trail their benchmarks, and the share grows over longer horizons.
Evidence-backed: S&P's SPIVA scorecards have compared active funds with their benchmarks for over two decades. Most active managers underperform, and the share grows with the time horizon: over 15 years, around nine in ten US large-cap funds have trailed the S&P 500 in recent editions.1
Evidence-backed: Morningstar's barometer, which counts funds that closed or merged along the way, also finds low long-term success rates, with cheaper funds succeeding more often.4
What mostly makes up your investments?
Your individual response is private. Only totals are shown.
02
Why: the arithmetic of costs
AI summary:Before costs active investors match the market, so after higher fees they must lag on average.
Evidence-backed: William Sharpe showed that before costs, the average actively managed dollar must earn the market return, because active and passive investors together hold the market. After costs, active management must therefore lag on average.2
Evidence-backed: The SEC notes that even small differences in fees add up to large differences in investment value over time.5
03
Can you pick the winners?
AI summary:Apparent persistence in fund performance was mostly explained by market factors and expenses, not skill.
Evidence-backed: Carhart's study of US funds found that apparent persistence in performance was almost entirely explained by common market factors and expenses, not manager skill. Only the worst performers persisted reliably.3
Ask this Sylo
Still wondering about something?
Answers come only from this page's reviewed material, with citations, and say plainly when the page doesn't cover it yet.
Behind this page
Who's adding to it, where it comes from, how it changed and what would make it better. Always open to everyone.
Discussion
Sources
Numbers match the citations in the article. A working link isn't proof that a page supports a claim; check the quoted passage and date.
- 1SPIVA: S&P Indices Versus Active scorecardsS&P Dow Jones IndicesPublished Mar 1, 2025Checked Sep 30, 2026
“Long-running scorecards comparing active funds against their benchmarks consistently find that most active managers underperform, with the share rising over longer horizons; over 15 years, around nine in ten US large-cap funds trail the S&P 500.”
- 2The arithmetic of active managementFinancial Analysts Journal (William F. Sharpe)Published Jan 1, 1991Checked Sep 30, 2026
“Before costs, the return on the average actively managed dollar will equal the return on the average passively managed dollar. After costs, the return on the average actively managed dollar will be less.”
- 3On persistence in mutual fund performanceThe Journal of Finance (Mark M. Carhart)Published Mar 1, 1997Checked Sep 30, 2026
“Common factors in stock returns and investment expenses almost completely explain persistence in mutual funds' performance; the results do not support the existence of skilled or informed fund managers.”
- 4US Active/Passive BarometerMorningstarPublished Feb 1, 2025Checked Sep 30, 2026
“A semiannual report measuring active funds against passive peers, including funds that closed; success rates are low over long horizons, and cheaper active funds succeed more often than expensive ones.”
- 5Understanding feesUS Securities and Exchange Commission (Investor.gov)Published Jan 1, 2024Checked Sep 30, 2026
“Fees and expenses reduce your investment returns, and over time even small differences in fees can add up to large differences in the value of your investment.”
How it changed
Published 3 times since Sep 30, 2026.
- Version 3Sep 30, 2026Live now
Added evidence on persistence of winners, the role of fees and Morningstar's survivorship-adjusted data.
- Added section “Can you pick the winners?”.
- Key takeaways were added.
- 3 new pieces of guidance for specific situations.
- Version 2Sep 30, 2026
First brief from Sharpe's arithmetic and the SPIVA scorecards.
- The main finding was rewritten.
- The finding is now labelled “evidence” (was “interpretation”).
- Added section “What the scorecards show”.
- Version 1Sep 30, 2026
Created the Sylo.
- First published version.
Help improve it
The brief is open about what's uncertain. These are the specific gaps that new material would fill.
“Can you pick the winners?” rests on one independent source
A second, independent source that confirms or challenges it would make this part more reliable.
Open questions
How do active success rates compare in European, emerging-market and small-cap funds?
No answers yet
Do active funds protect better during market downturns, as often claimed?
No answers yet
Around this topic
Sylos connect: narrower topics report up to broader ones, so what's learned in one place shows up where it matters.