Where active management earns its keep: fixed income ETFs and funds

Morningstar data show active bond funds beating passive peers more often than active equity managers do, but the advantage varies sharply by market segment and cost.

The contrast between passive and active management gets most interesting when you bring fixed income funds into focus.

Consider the most recent Morningstar data showing passive strategies took 75 per cent of overall European fund inflows, excluding money-market funds, in Q2 2026. But fixed income bucked the trend: active bond funds took in EUR47.5 billion versus EUR36.5 billion for their passive counterparts. Equity was almost the exact opposite, with EUR89.9 billion going into passive equity while active equity lost EUR17.8 billion.

The performance data tell a similar story. 

Morningstar’s latest European Active/Passive Barometer found that 46.8 per cent of active bond funds survived and outperformed the passive composite for their category over the year through June 2026. The success rate rose to 51.1 per cent over three years and stood at 47.5 per cent over five. Over 10 years, it fell to 33.5 per cent—still far above the 11.9 per cent success rate for active equity managers.

Morningstar Senior Principal Mara Dobrescu says there is a structural reason for that gap. 

“The case for active management is fundamentally stronger in fixed income than in equities because bond markets are structurally less efficient.” 

Unlike equity indexes, where larger weights get assigned to companies as their market values rise, traditional bond indexes tend to allocate more weight to the biggest borrowers. Bond markets are also fragmented, with millions of individual securities, many of which trade infrequently. This gives active managers more opportunity to make decisions around credit quality, duration, liquidity and individual security selection.

But the advantage is hardly universal. 

“The opportunities for active managers tend to be greatest in areas that are less liquid, less homogeneous, or more complex,” Dobrescu said, pointing to high yield, emerging-market debt, securitised credit and other specialist sectors. 

Morningstar’s numbers bear that out. Over 10 years, active euro corporate bond managers posted a 45.3 per cent success rate, while global emerging-market bond managers hit 40.9 per cent and local-currency emerging-market debt 46.5 per cent. Active euro government-bond managers, by contrast, managed just 18.5 per cent, while their GBP peers posted 10.3 per cent. 

Then there’s the cost side of the equation.

Morningstar’s 10-year success rate for active fixed-income funds in the lowest-fee quintile was 40.7 per cent. For the highest-fee quintile, it fell to 24.6 per cent.

As Dobrescu put it, “The strongest case is not for active management at any price, but for reasonably priced active strategies operating in segments where market inefficiencies remain meaningful.” 

In other words, fixed income might be one of active management’s biggest success stories, but the funds still need to earn their keep. The active label isn’t enough. Ultimately, active managers need market inefficiencies they can exploit so the fee doesn’t consume their edge.