Active Funds See Surging Inflows But Can They Beat the Market?

Trashing actively managed funds has been one of the biggest trends in financial markets over the past decade. Stacks of evidence proved that blindly buying the whole market delivered better returns than paying an expert to pick the winners, leading to massive inflows into index funds and outflows from their active counterparts.

Now the tide may be turning again, at least in the popular exchange-traded fund (ETF) space.

Active Funds See Outsized Inflows

Thirty percent of the money plowed into U.S. ETFs so far in 2025 was invested in ETFs managed by professional stock and bond pickers, according to data from Trackinsight. Considering active ETFs make up less than 10% of the market by assets, that’s a large chunk.

Similar findings were presented elsewhere. ETF Action, for example,  revealed that 34% of the money allocated to ETFs in the year to April 25 was for actively managed ETFs, and that recent trends point to investors dumping passive ETFs and active ETFs rising in popularity.

This data has got asset managers hopeful that funds run by stock pickers are staging a comeback.

Reasons for Active Funds’ Resurgence

Wall Street has long made a fortune from active funds. The selling point has always been striving to do better than average and having your money handled by the pros. Underperformance has overshadowed that message, but recent developments are helping this often criticized segment of the market get some positive PR.

New Launches

Active ETF product launches, including the conversion of popular mutual funds into ETFs, is giving the industry a much-needed facelift and attracting inflows from fans on both sides of the fence. ETFs generally carry lower fees than traditional active funds and offer greater liquidity as they trade throughout the day.  

Market Volatility

It’s been a volatile year for financial markets and volatility tends to create more opportunities for active managers to outperform.

Concentration Risk

Many indexes are top-heavy. When you invest in a passive ETF, you have a lot riding on the performance of just a handful of really big tech stocks, many of which, after years of outperformance, are looking overvalued.

Younger, More-Aggressive Investors

The surge in inflows into active funds being fueled by retail investors, and younger investors who have embraced the market in recent years—Robinhood-type of market players—have demonstrated that they’re more aggressive, seeking not just steady returns but market-beating gains.

Performance of Active vs Passive Funds

The idea of investing your capital in the entire market without somebody watching over your money is a scary prospect. However, for most people, it’s the best option.

Numerous studies indicate that investing in a passive index fund rather than picking stocks in an attempt to beat the market delivers greater returns over the long term, especially when factoring in fees.

According to the latest annual SPIVA scorecard, last year, 65% of mutual funds invested in large U.S. companies fell short of their minimum target of beating the S&P 500, the most popular index in the passive ETF space. And that wasn’t down to one bad year. Since S&P 500 started collecting the data 24 years ago, the annual average is that 64% of funds underperformed the index.

The Bottom Line

Wall Street has a lot of money riding on active funds restoring their reputation, and recent developments have worked in its favor. The concept of getting a pro to manage money still has many selling points, and the recent launches of ETFs managed by professional stock and bond pickers add to that, as do market volatility and concerns about the valuation of the big tech stocks.

However, it’s unlikely that the recent inflows represent a turning point in the long-debated active vs. passive battle. The biggest trump card is evidence of consistently delivering superior returns, and passive investing has that in spades.