It has been a pretty good year so far for active fund managers in 2025, according to AJ Bell’s latest Manager versus Machine report, which analyses more than 1,000 funds across seven key equity sectors. The report shows that 42% of active managers have outperformed a passive alternative so far in 2025. That may not sound like a lot, but it’s better than the 35% who managed the same feat in the first half of 2024 and is nudging up towards the 50% figure which might be considered a reasonable result in normal conditions.

GLOBAL AND US ACTIVE FUNDS SHINE

Active funds in the Global sector have had a particularly bright spell by their own standards, with 51% outperforming a comparable tracker in 2025 so far. This is a record high reading for this sector since AJ Bell launched the Manager versus Machine report in 2021. The strong showing is a result of the fact the US has uncharacteristically lagged other regional stock markets since the beginning of this year. Most global active fund managers are underweight the US compared to their tracker competitors, a position which has been a powerful headwind for many years, but which has put some wind in their sails so far in 2025.

Indeed, it looks like Donald Trump has helped make (some) active funds great again, as his policies have weakened the dollar and dented confidence in US stocks, which has meant the S&P 500 lagging other global indices.

There has been a parallel disturbance within the US stock market itself, which has helped US equity fund managers outperform to a higher degree than we have seen in previous Manager versus Machine reports. Some of the Magnificent Seven have been a big drag on index fund performance so far this year, which has opened the door for active managers with broader portfolios to score some points against the passive machines; 44% of active US funds outperformed a comparable tracker in the first half of the year, again a record high since we started compiling the data in 2021.

TRACKERS DOMINATE IN THE UK

Active management in the Global and US sectors may have perked up in 2025, but it’s been a dismal year so far for active managers investing in the UK stock market, where only 29% managed to beat the average index tracker. This poor performance can largely be laid at the door of mid and small caps lagging behind the big blue chips of the FTSE 100, combined with the fact active managers tend to be underweight large caps compared to a plain vanilla index tracking fund.

But here comes the really bad news for active managers: despite a reasonable showing in 2025 so far, the long-term numbers are still bleak. Over 10 years, across all seven equity sectors analysed, just 30% of active funds outperformed a passive alternative, a record low reading in the Manager versus Machine report. It’s unfair to describe this latest low water as a step change in long-term performance, given it’s only a few percentage points shy of what we’ve seen in recent years. However, it is a continuation and a deepening of a long-running trend.

IT WILL TAKE TIME TO OVERTURN PASSIVE DOMINANCE

The fact this comes against the backdrop of some brighter performance from active funds in the short term demonstrates that even if active managers start to turn things around, it’s going to take a considerable period of outperformance to overturn the dominance of index trackers in the long-term numbers. And in the meantime, tracker funds continue to hoover up fund flows at the expense of their active competitors. There are many reasons investors are mostly buying passive fund strategies, and performance is one of them. Our latest Manager versus Machine report suggests things have got a bit better for active funds on that front, but not enough to derail the juggernaut of demand for the passive machines.

DISCLAIMER: AJ Bell owns Shares magazine. The author (Laith Khalaf) and editor (Tom Sieber) of this article own shares in AJ Bell.

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