The recent pandemic volatility and March/April bear market sell-off provides a perfect situation to test this claim.
in its midyear installment of the Morningstar Active/Passive Barometer report, 51% of active funds that were around at the beginning of the year survived and outperformed their average index peer during the first half of the year… which means active funds were not categorically better than passive funds during the market volatility (though they were not worse, either).
Notably, though, there was some variability within fund categories, as only 48% of active U.S. stock funds beat their passive peers, but nearly 60% of foreign stock funds did, yet only 40% of active intermediate core, corporate, and high-yield bond funds managed to do so. On a longer-term 10-year basis – which includes the bull market of the 2010s and the bear market that started the 2020s – the results are generally worse, as even amongst lower-cost funds with only 19% of large-growth funds outperforming (and just 3% of high-cost funds in that category) and 36% of foreign large-stock funds outperforming (and only 19% of high-cost). Although 54% of low-cost emerging markets funds did outperform, along with 60% of low-cost global real estate, and 63% of low-cost high-yield. And ironically, the Morningstar research finds that on average, investors do tend to pick above-average (and lower-cost) fund managers than the rest, but often still end out underperforming passive peers simply because their timing of when they buy active managers is still not good.