Active bond managers have mostly outperformed passive alternatives in the year to June 2023, according to Morningstar analysis.
In its bi-annual European Active/Passive Barometer, the firm found that in the 24 categories analysed, 62.7% of active bond managers outperformed their passive counterparts over the 12-month period.
This marked an increase from 55.5% at the end of 2022 and 46.2% the year before.
Morningstar said the increase was largely due to bond markets regaining strength in the first half of 2023, with rising yields driving demand for developed government and investment-grade corporate issuers.
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On the European equity side, of the 43 categories analysed, around 36.6% of active managers outperformed passives, despite the lower proportion when compared to bond managers. This marks an increase from 33.6% at the end of 2022 and 30.4% in 2021.
Despite the short-term rosy picture for active managers, Morningstar said success rates "remain solidly in favour of passive funds" over the long-term.
On average, it found that just 17.1% of active equity managers and 23.1% of active bond managers overperformed their passive alternatives in the ten years to the end of June 2023.
This is because passive funds tend to survive longer, according to the company's findings. More specifically, in the ten years to June 2023, 53.7% of active equity funds survived on average, compared with 63% of index-tracking strategies.
A similar trend was also true for fixed income, where 52% of active funds survived versus 61% of passives.
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According to Morningstar, a fund's survival is mostly down to its success rate, with underperformance often leading to a shorter life span for active strategies, in tandem with poor stock selection and the compounded impact of higher fees.
Dimitar Boyadzhiev, senior manager research analyst, passive strategies, at Morningstar, said that more managers took advantage of the challenging market conditions in 2023. However, over the long term, he said "the challenge becomes evident"
"Only 17.1% of active equity and 23.1% of active bond managers beat passive alternatives over a ten-year span. Furthermore, passive funds exhibited greater longevity, with 53.7% of active equity funds and 63% of index-tracking funds still operational since inception as of June 2023," he added.
