The Evidence-Based Investor

Morningstar’s Active/Passive Barometer

The Morningstar Active/Passive Barometer is a semiannual report that measures the performance of U.S. active funds against passive peers in their respective Morningstar Categories. The Active/Passive Barometer uses several unique ways to measure active managers’ success.

It evaluates active funds not versus a costless index, but against a composite of actual passive funds. In this way, the “benchmark” reflects the actual, net-of-fee performance of passive funds.

It assesses active funds based on their beginning-of-period category classification, to better simulate the funds an investor would have had to choose from at the time.
It considers how the average dollar invested in various types of active funds has fared versus the average dollar in the passive composite.

It examines trends in active-fund success by fee level.

The Active/Passive Barometer is also comprehensive, spanning more than 3,500 unique active and passive U.S. funds which account for approximately $9.2 trillion in assets, or about 60% of the U.S. fund market.

All told, the Active/Passive Barometer is a useful measuring stick that can help investors better calibrate the odds of succeeding with active funds in different areas based on recent trends and longer-term history.

Morningstar’s Active/Passive Barometer Year-end 2016