Active equity managers registered a weighted success rate of 31.2% in 2023 across 38 categories, with a mere 17% success over a decade, according to Morningstar's latest its semi-annual Active/Passive Barometer, which measures the performance of active funds against passive peers in the European category.

Success for active equity managers was notably higher in mid-cap and small-cap equities, especially in sectors where passives showed bias.

The report spans over 26,600 unique active and passive Europe-domiciled funds that account for approximately €6.9trn in assets, or about half of the total European fund market.

Bonds made a remarkable comeback in 2023, with yields peaking to levels last seen in 2008. Active bond managers found success with duration plays, outperforming passives, which struggled due to their broad maturity spectrum. The one-year success rate for active bond managers was 49.8%, but long-term, only 23% outperformed passives over a decade.

Global equities saw resurgence despite economic slowdown risks, with double-digit growth rates in developed markets, whilst emerging markets, including China, showed modest recovery. European equities surprisingly outperformed, led by Italy and Spain, despite predicted downturns.

The UK equity market underperformed, with 63.5% of large-cap stock-pickers outdoing passives in the short term but only 20.5% over ten years.

The US equity market hit records, significantly aided by the tech rally. In the large-cap blend category, 41.9% of active funds outperformed in 2023, but over a decade, passives dominated with a success rate of 93.7%.

In EUR government bonds, active managers had a 35.5% one-year success rate, with a stark decrease over ten years. Investment-grade corporates offered a sweet spot for active managers, particularly in EUR and GBP markets. Emerging market bonds showed varied success, highlighting the risks and diminishing returns over the long term for active strategies.

Monika Calay, director of passive manager research, Morningstar, said: “Our extensive research highlights a challenging landscape for active managers, with a majority underperforming their passive peers over time. Yet, notable exceptions exist within specific Morningstar categories, such as Global Equity Income and India Equity.

"We've also seen success rates increase in the Emerging Markets arena, with active managers benefiting from underweighting China. Meanwhile, in the fixed income space, active bond managers continued to extract value with duration plays.”