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.
Most investors either ignore emerging markets or hand their money to active managers who underperform. Academic research points to a better approach: factor investing in emerging markets, targeting the company characteristics that have persistently driven higher returns.
