Morningstar’s Active/Passive Barometer (A US Study)

A new yardstick for an old debate

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Morningstar’s Active/Passive Barometer is a semiannual report that measures the performance of U.S. active managers against their passive peers within their respective Morningstar categories. The Active/Passive Barometer report is unique in the way it measures active managers’ success relative to the actual, net-of-fee performance of passive funds, rather than an index which isn’t investable.

The report finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons and experienced high mortality rates (i.e. many are merged or closed). In addition, the report finds that failure tended to be positively correlated with fees (i.e. higher cost funds were more likely to underperform or be shuttered or merged away and lower-cost funds were likelier to survive and enjoyed greater odds of success). Fees matter. They are one of the only reliable predictors of success.

See the full Morningstar Research Paper here.

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