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On Wall Street in 2021, the tortoise is beating the hare.

Wall Street's supposedly nimble and reactive active fund managers, who have for decades been pounding their chests about how profitable they can be during times of economic volatility, are getting their clocks cleaned by slow-moving, passive fund managers, according to two new reports.

Fast and Furious

Active fund managers are investment advisors who make choices on the fly, rapidly reacting to economic conditions with the goal of outdoing market returns. They sell themselves on their ability to earn way more money in a turbulent market — like the one we've had for the last year and half — than passive fund managers, who invest in indexes and stocks that bring returns more in line with the market.

So with a recession, then a crazy bull run on the markets, China's tech crackdown, supply chain bottlenecks, inflation galore, and central bank gamesmanship, active fund managers must have broken the bank lately, right?

Nope, say researchers at Morningstar and S&P Global:

  • Morningstar analysed 3,000 active funds and found that just 47% outperformed their average passive counterpart in the year leading to June 2021.
  • S&P Dow Jones Indices analysts found, in the 12 months leading to June 30, 58% of large-cap active funds, 76% of mid-cap active funds, and 78% of small-cap active funds trailed the S&P 500, S&P MidCap 400 and S&P SmallCap 600.

Large-cap funds were especially risky, with over 40% failing in a 10-year period as a result of bad stock bets by fund managers.

Slow and Steady Wins the Race: In the long term, the performance of active fund managers actually gets way, way, worse. Only 25% of active funds beat their passive counterparts over 10 years, according to Morningstar. And just 11% of actively managed large-cap funds outperformed passive funds during the same period.