The managers running the biggest active funds picked stocks that beat the market in 2025 — and most still lagged their benchmark. A Morningstar do-nothing experiment and a body of academic research explain why active funds underperform even when the picking is good: skilled buying undone by poor selling, the hidden cost of trading, and the incentives that keep managers churning. The UK evidence points the same way.
The investors who stay calmest during market volatility aren't the bravest. They hold passive investing products that don't ask them to make decisions. Research from Morningstar, Vanguard, and academic studies shows that product design, not temperament, explains why passive fund investors trade less, hold longer, and capture more of their returns. UK flow data from the current Iran-driven selloff confirms the pattern in real time.
Robin Powell
Mar 2310 min read
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