For investors seeking exposure to equities, low-cost funds that simply track a stock market index have been hard to beat in recent years. For bonds, the picture has been very different.
Using Morningstar data, we analysed more than 50,000 fund records from Europe, Asia, and Africa (EAA) over the 10 years to 30 April 2026. We found that after fees, approximately three out of every four actively managed bond funds beat their median passive peer in their category. Among active equity funds, fewer than one in three did.
What do we mean by active and passive?
A passive fund simply aims to track a market index – a predefined list of investments, such as large European companies or bonds issued by major governments. Because there is little decision-making involved, passive funds tend to have very low fees.
An active fund relies on investment managers who choose what to buy and what to avoid, aiming to generate higher returns than a relevant index. That research and decision-making costs more, so active funds usually charge higher fees.
The scorecard: Historically, active wins in bonds, passive wins in equities
Looking across bonds and equities, we compared each active fund with the median, or middle-ranking, passive fund in the same category. In our view, comparisons with passive funds are more meaningful than comparisons with broad market benchmarks, as benchmarks are generally not investable and are often too broad to represent realistic investment choices.
We compared performance after fees over three-year, five-year, and 10-year horizons. The overall pattern was consistent: Around three-quarters of active bond funds outperformed their median passive peers over 10 years, compared with fewer than one-third of active equity funds.
Figure 1: Fixed income and equity tell opposite stories for active management
The results were consistent across different bond categories but were particularly striking in emerging markets. Over 10 years, more than 96% of active emerging market bond funds outperformed their median passive peers, compared with just over half of active emerging market equity funds.
Figure 2: Active management proves to be particularly effective in emerging markets
How much difference does it make?
Over the 10 years to the end of April 2026, the median active bond fund beat its passive peer by 36 basis points (0.36%) a year, after fees.
By contrast, the median active equity fund trailed its passive peer by 88bps (0.88%) a year.
The spread of results matters just as much. In bonds, even managers near the bottom quarter of the active fund universe still slightly outperformed passive bond funds. In equities, only managers in the top quartile did so.
In other words, the study suggests that selecting an active manager that outperformed was generally easier in bonds than in equities.
Why small differences can add up
While a difference of less than one percentage point a year may not sound like a lot, even a small annual gap can add up to a much larger difference over time because investment returns compound.
If a hypothetical investment of €10,000 grew for 30 years at the return assumed for a median passive fixed income fund, it would reach approximately €26,486. If it instead earned an additional 73 bps a year, equivalent to the historical advantage recorded by the lowest-performing, top-quartile active fixed income fund in the study, it would grow to approximately €32,736. That is a difference of €6,250, or 23.6%.
Figure 3: The compounding effect of active
Why are bonds different?
Four characteristics of the bond market may help explain why active managers have historically performed better in bonds than in equities.
First, many large bond investors are not primarily focused on maximising returns. Central banks, banks, and insurers often buy bonds to meet policy or regulatory requirements, which can create potential opportunities for active managers focused on investment value.
Second, bond indices favour the biggest borrowers. While equity indices give the greatest weighting to the largest companies, bond indices give the greatest weightings to governments or companies that have borrowed the most. Active managers can decide whether that exposure is attractive or not.
Third, bond markets see a high volume of new issuance and trading. Companies regularly issue new bonds, often offering a small yield premium to attract buyers. Active managers can assess these opportunities and decide which offer the best value, while passive managers are primarily focused on tracking the index. In equities, new issuance and turnover are much lower.
Finally, bond indices are difficult to replicate. Companies may have many different bonds outstanding, each with different characteristics, and new bonds are continually replacing maturing ones. That makes bond indices more complex and costly to track precisely.
What this means for investors
Passive funds can be a sensible, low-cost way to own equities. But research has found that in bonds, going passive can often mean leaving money on the table.
This does not mean that every active bond fund will outperform. Results vary substantially across funds, and past performance does not predict future returns. Investors should still consider the risks, the manager’s approach, fees, and their own objectives.
Analysis methodology
This analysis is provided for illustrative purposes only.
Universe & data. Morningstar EAA Global categories, grouped using Morningstar category definitions into broad categories (IG corporate, diversified, government, high yield, emerging markets and equity). Fixed-income totals also include inflation-linked, flexible (Regional Bond), Asian and subordinated bond funds, counted in the universe total but not shown as separate sectors. Data sourced from Morningstar Direct as of 30 April 2026.
Categories.
Funds and passive peers are drawn from the Morningstar Global EAA categories (excluding US Loans). Fixed income: Global Corporate, Diversified, Government, High Yield and Inflation-Linked Bond; Global Emerging Markets Bond (incl. Local Currency) and EM Corporate Bond; Subordinated Bond, Regional Bond and Islamic Global Sukuk. Equity: Global Emerging Markets Equity (incl. Small/Mid-Cap and ex-China), Equity Income, Flex-Cap, Frontier Markets, Large-Cap Blend / Growth / Value and Small/Mid-Cap Equity.
Peer matching.
Active funds are matched with passive peers within Morningstar EAA categories. For fixed income each fund's primary prospectus benchmark is mapped to a narrower subcategory to ensure apples-to-apples comparisons; for equities we reference Morningstar categories only. In all cases, comparisons respect each fund's base currency.
Win rate.
The percentage of active funds whose annualised return over the evaluation window exceeded the median return of passive funds in the same category. Evaluation windows of 3, 5 and 10 years are shown; the 10-year window runs 1 May 2016 to 30 April 2026.
Excess-return quantiles.
For each broad category we compute the 25th, 50th (median) and 75th percentiles of active-fund excess return relative to the median passive peer. Distributions are shown at the Broad Category level only.
Survivorship.
Funds discontinued during the evaluation window are retained and missing returns are imputed from peer group averages to mimic real-life behaviour of investors.
- The study evaluated active and passive fixed income funds within selected Morningstar EAA fixed income categories.
- Eligibility for inclusion was determined by category classification, available return history, and the existence of comparable passive peers.
- Results are presented on an aggregated basis and do not reflect the performance of any individual fund or strategy.