Passive funds come out on top while stock pickers bleed: 2025 was another punishing year for active equity managers. About USD 1 tn was pulled from active equity mutual funds, extending outflows to an 11th straight year, while passive equity ETFs pulled in more than USD 600 bn, according to Bloomberg Intelligence estimates.

Concentration did the damage: A small cluster of US mega-cap tech stocks accounted for an outsized share of market gains, reinforcing a decade-long pattern. Investors trying to keep up with the market have been increasingly cornered into holding those stocks (and little else), leaving diversified portfolios at a disadvantage.

The hit rate collapsed: Roughly 73% of US equity mutual funds trailed their benchmarks in 2025, the fourth-worst showing since 2007. Underperformance worsened after April’s tariff scare faded and AI enthusiasm reasserted tech leadership.

Breadth never showed up: On many days this year, fewer than one in five stocks rose alongside the broader market. The S&P 500 consistently beat its equal-weighted version — a clear signal that gains remained narrow and unforgiving for stock pickers.

Active still worked, just not at home: A handful of managers outperformed by stepping far outside US large caps. Dimensional Fund Advisors’ International Small Cap Value portfolio gained just over 50%, driven by exposure to non-US financials, industrials, and materials rather than Big Tech.

Why 2025 felt harsher than usual: The Financial Times points out that this year’s gainers were dominated by AI-linked stocks, Asian chipmakers, defense names, and precious metals, while US consumer and advertising stocks lagged — reinforcing sector and regional divides that made broad-based alpha elusive.

The identity crisis of “active”: With deviation proving costly, many funds drifted closer to index weights, blurring the line between active and passive while still charging higher fees. Bloomberg says that dynamic has made investors increasingly unwilling to pay for underperformance.

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