If you’ve read any financial headline in the past few months, you’ve probably seen some version of this stat: 79% of actively managed large-cap U.S. equity funds underperformed the S&P 500 in 2025, the fourth-worst showing in the 25-year history of the SPIVA U.S. Scorecard, and a sharp decline from 65% the year before.

Zoom out to 15 years, and the picture looks even starker: not a single one of 22 U.S. equity fund categories had a majority of active managers beat their benchmark. So let’s address the obvious question directly: if the data looks that lopsided, how can active management possibly still earn its fee? The honest answer isn’t “the data is wrong.” It’s that the question itself is usually asked too narrowly.

What SPIVA data actually measures

SPIVA (S&P Indices Versus Active) is a valuable, rigorous benchmark, and its headline numbers are real. But it measures one specific thing: whether the average actively managed fund in a category beat a passive index, on a gross return basis, over a set period. It doesn’t measure:

  • Whether a specific investor’s actual dollars, timed with their actual entries and exits, outperformed
  • Downside protection during periods of market stress
  • After-tax outcomes, which can diverge significantly between actively and passively managed vehicles
  • The behavioral and planning value an advisor provides independent of fund selection

That distinction matters more than it might sound. A 2026 study led by professors K.J. Martijn Cremers (Notre Dame), Jon Fulkerson (University of Dayton), and Timothy Riley (University of Arkansas), commissioned by the Investment Adviser Association’s Active Managers Council, argued that the standard SPIVA methodology overstates active underperformance by ignoring asset-weighting and the timing of fund closures. Under their adjusted framework, the performance gap between active and passive strategies narrowed considerably, and in several categories reversed entirely.

To be clear: this is a live, contested academic debate, not a settled rebuttal. But it’s worth knowing that the “79% underperformed” headline isn’t the last word: it’s one side of an ongoing methodological argument among serious researchers.

Where active management has an edge

Even taking SPIVA’s numbers at face value, they’re not uniform across every asset class. The case for active management is strongest, and the data actually supports this, in specific, less efficient corners of the market:

  • Fixed income. Bond markets are structurally less efficient than large-cap U.S. equities, with wider bid-ask spreads, less standardized information, and more room for genuine credit analysis to add value.
  • Small-cap and international/emerging markets equities. These segments have historically shown narrower (and at times more favorable) active-versus-passive gaps than large-cap U.S. stocks, largely because they’re less heavily researched and less efficiently priced.
  • Periods of market dispersion. Active managers generally need meaningful differences between winning and losing stocks to have a chance at adding value through selection. The 2025 SPIVA report itself noted that unrelenting large-cap outperformance narrowed the opportunities for active stock-pickers that year specifically, which is a market-regime problem more than a permanent verdict on the strategy.

The takeaway isn’t “active always wins here.” It’s that blanket statements about active versus passive, in either direction, tend to collapse once you look at category-level and market-regime data instead of a single headline number.

The fee you’re actually paying for

Here’s the part that gets lost in most of this debate: for many investors, the value of working with an advisor was never only about picking funds that beat an index. Research from groups like Vanguard (its long-running “Advisor’s Alpha” framework) and Russell Investments (“The Value of an Advisor”) has consistently pointed to a different set of levers that matter just as much, if not more:

  • Behavioral coaching: helping clients avoid panic-selling during downturns or chasing performance during bubbles, which studies consistently show costs the average self-directed investor real, measurable return over time.
  • Tax-efficient asset location and tax-loss harvesting, which can add value regardless of whether the underlying funds are active or passive.
  • Rebalancing discipline, withdrawal sequencing in retirement, and goals-based planning that a benchmark comparison simply doesn’t capture.

None of that is an argument that stock-picking always beats an index fund. It’s an argument that “active management” and “the value of professional financial advice” are related but distinct questions, and a lot of the SPIVA-driven headlines conflate the two.

So, does active management still earn its fee?

The fair, evidence-based answer: it depends heavily on where, and what you’re actually paying for.

  • If the claim is “the average actively managed U.S. large-cap fund will beat a low-cost S&P 500 index fund over the next decade,” the data leans clearly against that bet.
  • If the question is broader (where a skilled manager operates in a less efficient market segment, where downside protection matters more than benchmark-relative return, or where the value being delivered is planning and behavioral discipline rather than pure stock selection) the case holds up much better, and is backed by real, if contested, research on both sides.

The honest version of this conversation isn’t “active beats passive” or “passive always wins.” It’s matching the right tool to the right part of a portfolio and the right investor, and being transparent about what the data does and doesn’t actually show.

Frequently asked questions

Does active management ever outperform index funds?

Yes, in specific categories and time periods, particularly in less efficient markets like small-cap, international, and fixed income, and during periods of high dispersion between winning and losing stocks. Outperformance is not consistent or guaranteed across categories or time frames.

Why did active managers underperform so badly in 2025?

SPIVA’s 2025 scorecard attributed much of the underperformance to unusually concentrated large-cap outperformance, which narrowed the opportunities for stock-pickers to differentiate from the index.

Is the SPIVA scorecard considered reliable?

It’s the most widely cited benchmark in the active-versus-passive debate and uses a rigorous, long-running methodology. However, a 2026 academic study backed by the Investment Adviser Association has challenged aspects of its methodology, arguing it may overstate active underperformance in certain respects. Both perspectives are part of an active, ongoing debate.

This article is for general informational and educational purposes only and does not constitute personalized investment advice. Past performance, including the historical data referenced above, is not indicative of future results. Whether active or passive strategies are appropriate depends on individual circumstances, and you should consult a licensed financial advisor before making investment decisions.