Active vs Passive ETFs: The Data That Settles the Debate

The question of whether active management adds value isn't a philosophical debate. There's a rigorous, globally-replicated dataset that answers it. It's called the SPIVA Scorecard, and it's the gold standard for measuring active fund performance. This article walks through what the data says, where the exceptions exist, and how to think about active ETFs on the ASX in 2026.

Published: March 2026 | Category: ETF Insights | Read time: ~12 min

SPIVA Australia: The 2025 Verdict

The S&P Indices Versus Active (SPIVA) Australia Scorecard, published by S&P Dow Jones Indices at year-end 2025, is the most comprehensive measure of Australian active fund performance against benchmarks.

The numbers are striking:

Source: SPIVA Australia Year-End 2025 Scorecard

The AU Equity General category tells the core story. Nearly three-quarters of managers failed to beat the ASX benchmark over one year. Push out to 15 years — through multiple market cycles, GFCs, pandemics, bull runs — and 87% still came up short. Global equity is even more damning: 96% of active managers underperformed over 15 years.

Why Does Active Management Structurally Underperform?

The answer isn't that fund managers are incompetent. Most are highly intelligent, deeply researched professionals. The problem is structural:

➡️Fees drag returns from day one. An active fund charging 0.78% MER needs to beat the index by 0.78% every year just to deliver the same net return as a passive fund. In a market where the average stock returns ~8% annually, that's a meaningful hurdle that compounds against you over time.

➡️Closet indexing is rampant. Many active managers, under career pressure, quietly hold portfolios that look remarkably like the index. They take just enough active bets to justify the active fee, but not enough to genuinely differentiate performance. The result is index-like returns at active-like prices.

➡️Transaction costs compound the fee drag. Active managers trade frequently — every trade incurs brokerage, bid-ask spreads, and potential market impact costs. These invisible costs rarely appear in the headline MER but they add up.

➡️Style drift is hard to avoid. Managers hired to run a specific mandate (e.g., Australian small cap growth) often drift toward whatever has been working. This creates benchmark mismatch and means you're rarely getting exactly what you paid for.

➡️Career risk makes managers herd. A fund manager who holds Microsoft, Apple, and Alphabet isn't going to lose their job if those fall — everyone holds them. The career-optimal strategy is to own a portfolio close to consensus. The result is index-like behaviour without index-like fees.

The Notable Exception: Australian Bonds

The one bright spot in the SPIVA data is fixed income. Only 27% of Australian bond managers underperformed their benchmark over 1 year — meaning the majority actually outperformed. This makes structural sense: bond markets involve more negotiated transactions, private deals, and information asymmetry than equity markets. There is genuine alpha available. More on this in the "When Active Makes Sense" section below.

It's Not Just Australia: Active Underperforms Everywhere

Some Australian investors assume this is a local market issue — that our relatively concentrated ASX, dominated by banks and miners, just happens to be hard to beat. The global SPIVA data destroys that theory.

The pattern holds across geographies:

• Canada: 93% of active managers underperformed in 2025 — the worst result globally

• US Large Cap: 79% underperformed the S&P 500

• Japan Global: 87% underperformed

• Europe Global Equity: 56% underperformed

• Japan Large Cap: 49% — one of the few markets where active comes close to coin-flip odds

The Japan Large Cap result is genuinely interesting and worth noting. Japan has historically had corporate governance inefficiencies, cross-shareholding structures, and less sell-side coverage of smaller companies — characteristics that create the kind of information asymmetry active managers can exploit. It's not a coincidence that this is one of the few markets where active doesn't look structurally broken.

But for every Japan exception, there's a Canada: 93% failure rates are not a skills problem. They're a mathematical certainty when you factor in fees across the whole industry.

The structural reality: Active management is a zero-sum game before costs. Every active manager who beats the index must be matched by one who underperforms. Add costs, and the average active investor must underperform. SPIVA just makes this visible.

The Hyperion Case Study: When Good Turns Catastrophic

No case study illustrates the active management risk better than HYGG — Hyperion Global Growth Companies Fund (Managed Fund) — and Hyperion more broadly.

From roughly 2014 to 2021, Hyperion Asset Management was considered the gold standard of Australian active management. Their concentrated, high-conviction portfolio of quality global growth stocks produced extraordinary returns. They attracted billions in funds under management. Financial advisers trusted them. Retail investors piled in.

Then the cycle turned.

By February 2026, HYGG had delivered a 1-year return of -9.1% against a benchmark return of +13.3% — a gap of -22.4 percentage points. Their Australian fund performance was even more brutal: -23.2% versus the ASX 200's +16.4%, a -39.5 percentage point miss.

Hyperion's February 2026 factsheet confirmed the continued conviction in their existing holdings, yet the portfolio continued to significantly lag. This is the cruel mathematics of concentrated active management: when your style is working, you look like a genius. When it stops working, the drawdown can be catastrophic and extended.

The lesson isn't that Hyperion are bad managers. The lesson is that outperformance cycles, and when it reverses, it can reverse hard and fast. Investors who piled into Hyperion after years of outperformance — which is when most investors actually allocate capital — experienced severe underperformance. The SPIVA data captures this survivorship-bias-adjusted reality: many funds that look great over a 5-year window will look terrible over the next 5 years.

Active ETFs on the ASX: The 2026 Scorecard

The active ETF market on the ASX has grown significantly, with 89 active ETFs now listed across various categories. CBOE Australia data to February 2026 allows a clear-eyed assessment of how they've actually performed.

The headline result: only 31% of global equity active ETFs and 33% of Australian equity active ETFs beat their benchmarks over 1 year.

This is entirely consistent with the broader SPIVA findings, and it's worth noting that the ETF structure doesn't magically improve manager skill. An active ETF is simply an active fund that happens to trade on exchange.

The Winners

A handful of active ETFs produced genuinely impressive results:

• GIFL (Lazard Global Infrastructure): +32.3% vs benchmark +13.3% = +19.0% excess return. Infrastructure's combination of defensive cash flows and inflation linkage made it a standout in 2025.

• DAVA (Dimensional Australian Value): +30.7% vs ASX200 +16.1% = +14.6% excess return

• FEMX (Franklin Emerging Markets): +27.0% vs benchmark +13.3% = +13.7% excess return

• PGA1 (Plato Global Alpha): +25.1% vs benchmark +13.3% = +11.8% excess return

• DFGH (Dimensional Global Equity + Hedged): +22.3% vs benchmark +13.3% = +9.0% excess return

• AGX1 (Activex Ardea Real Outcome): +20.7% vs benchmark +13.3% = +7.4% excess return

• DACE (Dimensional Australian Core Equity): +20.8% vs ASX200 +16.1% = +4.7% excess return

It's worth noting that Dimensional's strong showing (DAVA, DACE, DFGH) reflects their systematic, factor-based approach. Dimensional doesn't rely on individual stock-picker conviction — they harvest well-documented return premia (value, profitability, small cap) through disciplined portfolio construction. This arguably puts them closer to smart beta than traditional active management, which partly explains their consistency.

The Losers

The underperformers tell the cautionary tale:

• CGUN: -17.4% vs benchmark +13.3% = -30.7% excess return (worst on the ASX)

• MOGL: -14.5% vs benchmark +13.3% = -27.8% excess return

• HYGG: -9.1% vs benchmark +13.3% = -22.4% excess return

• FRGG: -9.1% vs benchmark +13.3% = -22.4% excess return

• MGOC: -5.5% vs benchmark +13.3% = -18.8% excess return

These aren't just bad years. In several cases, investors paid an above-average MER to significantly trail an index fund. The fee-adjusted reality is even worse than the raw underperformance numbers suggest.

Why the Best Active Managers Won't Be in an ETF

There's a deeper structural point that the SPIVA data alone doesn't capture: the genuinely exceptional stock-pickers don't run ASX-listed ETFs.

Warren Buffett runs a closed-end vehicle (Berkshire Hathaway). Peter Lynch ran a closed-end fund with strict capacity limits. Renaissance Technologies' Medallion Fund is closed to outside investors entirely — the principals only invest their own capital. Joel Greenblatt's early Gotham Capital returned 50% annually... then he closed it to outside money because he had all the capital he needed.

The pattern is consistent: truly exceptional active managers have such strong track records and such high demand for their services that they don't need to list a low-fee ETF on a retail exchange. They can charge 2-and-20 hedge fund fees, or simply manage institutional capital privately.

The active ETFs that do list on the ASX are, by definition, managers who need retail distribution — either because their track records don't support institutional mandates, or because they're asset-gathering at scale to generate fee revenue. Neither characteristic is associated with superior risk-adjusted returns.

This isn't a knock on the managers themselves. It's a structural observation about where genuine alpha lives in the market — and it's largely not in ETF form.

When Active Management Actually Makes Sense

The data isn't uniformly negative on active management. There are specific pockets where the structural arguments for active genuinely hold:

1. Australian Bonds

As noted above, SPIVA data shows active bond managers have outperformed their benchmarks for three consecutive years running. The bond market has structural features — negotiated prices, private placements, less transparent pricing — that create genuine opportunities for informed active managers. If you want active exposure, fixed income is the category with the most empirical support.

2. Emerging Markets

The FEMX result (+13.7% excess return) reflects a real phenomenon: emerging markets are genuinely less efficient. Sell-side coverage is thinner, information is less accessible, corporate governance is patchy, and liquidity is lower. These are exactly the conditions where research-intensive active management can add value. The SPIVA data also shows lower long-term underperformance rates in EM categories globally.

3. Australian Small Caps

With only 60% of AU Mid/Small Cap managers underperforming over 15 years — versus 87% for large cap — the small cap market offers better odds for active. Less analyst coverage, lower liquidity, and more company-specific idiosyncratic risk create the environment where stock-picking skill has a better chance of expressing itself. Still more than a coin flip going against you, but meaningfully better than large cap.

The Fee Drag Maths: The Number Nobody Talks About

Here's the arithmetic that should end most debates about active management for core portfolio holdings.

The average active ETF on the ASX charges an MER of 0.78%. The average passive index ETF charges 0.15%. That's a difference of 0.63% per year — before considering any performance differential.

To put this in concrete terms:

On a $100,000 portfolio over 20 years, at a gross return of 8% per year:

• Passive ETF (0.15% MER): ends at approximately $446,000

• Active ETF (0.78% MER): ends at approximately $406,000

• Difference: ~$40,000 in fees alone

And that 0.63% annual hurdle compounds. The active manager doesn't just need to beat the index this year. They need to beat it by at least 0.63% every single year for 20 years — consistently, without a bad run. The SPIVA data shows that even over shorter horizons, the majority can't clear this bar.

The comprehensive guide to ETF fees goes deeper on how fees compound over time. For a ranked comparison of every ETF's fee structure, see the ETF fees ranked breakdown.

Smart beta / factor ETFs sit in the middle at around 0.35% MER — capturing some systematic return premia (value, momentum, quality) at roughly double the cost of passive but less than half the cost of traditional active. For investors who believe in factor investing, this can represent a reasonable middle ground.

The Verdict: What to Do With This Information

The SPIVA data, the global pattern, the Hyperion case study, and the ASX-listed active ETF scorecard all point to the same conclusion.

For core portfolio holdings, passive wins decisively. A low-cost diversified index ETF — VGS, IVV, VAS, or a diversified option like VDHG — gives you market returns minus a tiny fee. Over 10, 20, or 30 years, the overwhelming majority of active managers will not outperform this approach net of fees.

If you want active exposure, the data points to three categories with the best odds:

1. Systematic/factor-based approaches (Dimensional's range — DAVA, DACE, DFGH, DHHF) — these aren't traditional active but they're not purely passive either. They harvest documented risk premia with discipline and low emotional override.

2. Infrastructure and real assets — GIFL's +19% excess return reflects a category (global listed infrastructure) where assets have genuine pricing power, long-duration cash flows, and inflation linkage that pure equity benchmarks don't fully capture.

3. Active bonds — the one area where SPIVA data consistently shows active can add value.

The core-satellite framework is the right structure. Keep 80-90% of your portfolio in low-cost passive ETFs. Allocate a satellite position — no more than 10-20% — to active strategies where you have a specific thesis. Never let active management be your core. The core-satellite portfolio guide explains this framework in detail.

For investors interested in thematic active strategies, the thematic ETFs breakdown covers the specific risks and return profile of thematic active management — where the performance gap between winners and losers is even wider.

Quick Reference: Key Tickers Mentioned

Sources

• SPIVA Australia Year-End 2025 Scorecard — S&P Dow Jones Indices

• SPIVA US Year-End 2025 — S&P Dow Jones Indices

• SPIVA Europe Year-End 2025 — S&P Dow Jones Indices

• Hyperion Asset Management February 2026 Factsheets (HYGG, Australian Growth Companies Fund)

• CBOE Australia Active ETF Performance Data, February 2026

• Vanguard Index Investing Research

• Morningstar Active/Passive Barometer

This article is general information only and does not constitute financial advice. ReviewETF.com.au is an independent research platform. No fund manager has paid for placement or favourable coverage in this article. Past performance is not a reliable indicator of future performance. Always consider your personal financial situation and objectives before investing, and seek advice from a licensed financial adviser if appropriate.

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• The 2-ETF Portfolio: Is It Actually the Best Approach?

• Everything You Need to Know About ETF Fees and Performance