Active management has long divided investors. But with economic volatility and policy shifts shaking up Australian markets in 2025, the debate is heating up again. Is it still worth paying higher fees for fund managers who promise to beat the market, or are passive options the smarter play? Let’s break down the latest trends, performance data, and practical implications for Australians considering active investing.
How Active Management Works—And Why It’s in Focus for 2025
Active management means entrusting your money to professional fund managers who select shares, bonds, or other assets in an attempt to outperform a chosen benchmark. Unlike passive funds (like most ETFs and index funds), which simply track a market index, active managers make tactical decisions—shifting allocations, picking sectors, and timing trades based on research and forecasts.
In the past decade, passive investing surged as low-cost ETFs and index funds consistently outperformed high-fee active funds. But 2024’s market volatility—sparked by inflation, changing interest rates, and geopolitical tensions—has challenged some of the assumptions underpinning the passive boom. In 2025, with the ASX and global markets experiencing more divergent returns and increased sector dispersion, active strategies are seeing renewed interest.
- Policy updates: The Australian Securities and Investments Commission (ASIC) in early 2025 tightened disclosure rules for managed funds, requiring clearer reporting on fees, performance benchmarks, and active/passive status. This move aims to help investors better compare fund options.
- Superannuation shake-up: Several super funds have increased allocations to actively managed strategies in sectors like Australian small caps and global equities, citing the need for nimble, risk-aware management in uncertain times.
Performance: Are Active Managers Justifying Their Fees?
The million-dollar question: do active funds actually deliver better returns? The answer is nuanced. According to 2025 data from Morningstar and S&P Dow Jones Indices:
- In Australian large-cap equities, less than 30% of active funds outperformed the S&P/ASX 200 over the last five years, after fees.
- In Australian small-cap and global equities, however, over 50% of active funds beat their respective benchmarks in 2024–2025, thanks in part to increased market volatility and stock dispersion.
- Fixed income active managers showed stronger results, with about 60% outperforming passive options in the past 18 months as interest rates swung sharply.
But higher fees remain a drag. The average management fee for active Australian equity funds sits at 1.1% p.a., compared to less than 0.2% for index ETFs. Over a decade, that difference can erode thousands from a typical portfolio—unless the manager delivers consistent outperformance.
When (and How) Active Makes Sense for Australians
Despite the odds, there are situations where active management may add value for Australians:
- Less efficient markets: In areas like Australian small caps, emerging markets, or niche sectors (e.g., technology or ESG), skilled managers can exploit market inefficiencies that passive funds may miss.
- Downside protection: Some active funds have proven adept at preserving capital during market downturns, using cash allocations, hedging, or flexible sector shifts to reduce losses.
- Tax and income strategies: Active managers can tailor portfolios for franking credits, tax minimisation, or income generation—important for retirees and high-net-worth Australians.
But picking a winning active manager isn’t easy. Key steps for investors:
- Scrutinise long-term, after-fee performance versus relevant benchmarks.
- Check for style drift—does the fund stick to its mandate?
- Look for manager tenure and process transparency.
- Be wary of high turnover, which can trigger extra costs and tax events.
Platforms like the ASX, Morningstar, and Canstar now offer enhanced fund comparison tools following ASIC’s 2025 reforms, making it easier to analyse options.
Conclusion: Active, Passive—or a Blend?
Active management isn’t for everyone, but it’s far from dead in 2025. For Australians willing to do their homework, selectively adding active funds—especially in less efficient or volatile market segments—could provide a performance edge. However, for core portfolio holdings, the case for low-cost passive remains compelling.
