Active investment management has always promised to beat the market, but in 2025, the game is changing. With new regulations, evolving investment products, and a fresh wave of data on fund performance, Australian investors face a pivotal question: Is paying extra for active management still a smart move?
How Active Management Works—and Why It’s Under Scrutiny
Active investment managers select stocks, bonds, or other assets with the goal of outperforming a benchmark index. This contrasts with passive investing, where funds simply track the market. Historically, the pitch has been simple: expert managers can spot opportunities and avoid pitfalls, hopefully delivering higher returns.
But 2025 is not 2015. Several factors have put active management under the microscope:
- Fee pressure: Management fees for active funds remain higher than passive funds, often 0.8%–1.5% annually compared to as low as 0.1% for index ETFs.
- Performance data: The latest ASX and Morningstar reports show that, over 5- and 10-year periods, most Australian active equity funds have underperformed their benchmarks after fees.
- Regulatory changes: ASIC’s 2024-2025 crackdown on misleading performance claims and new transparency rules mean managers must be clearer about their track records.
This has prompted many investors to reconsider whether active management justifies its cost.
Where Active Managers Shine (and Where They Struggle)
Despite widespread skepticism, there are still areas where active managers can deliver value:
- Volatile or inefficient markets: Australian small-cap, emerging market, and sector-specific funds have seen some managers outperform, especially during recent market swings tied to global supply chain shifts and resource sector volatility.
- ESG integration: Active managers are better equipped to incorporate environmental, social, and governance factors, which are increasingly important in 2025 as super funds and institutional investors push for genuine sustainability screening.
- Downside protection: Some active funds have demonstrated better risk management, cushioning losses during downturns—an attractive trait after the late-2023 rate shocks.
However, persistent challenges remain:
- Consistency: Only a minority of active funds consistently outperform; most revert to the mean or lag behind over time.
- Costs: High fees and transaction costs eat into returns, making it harder to justify active management unless outperformance is significant.
- Transparency: ASIC’s new rules require more regular, plain-English disclosure of fund holdings and real after-fee returns.
What’s New for Investors in 2025: Policy, Technology, and Product Trends
Three key 2025 developments are shaping the future of active management in Australia:
- ASIC’s Fund Comparison Tool: Launched in late 2024, this online tool lets investors directly compare fund performance, fees, and risk metrics, shining a spotlight on underperformers.
- AI-driven portfolio analytics: The rise of AI in investment management is helping both active managers and individual investors spot patterns and inefficiencies faster. Some boutique active funds are leveraging proprietary AI models for stock selection, aiming to regain an edge over index trackers.
- Super fund reforms: Large superannuation funds are facing member pressure to justify their active strategies, with the Your Future, Your Super (YFYS) performance test extended to more products in 2025. Funds that consistently underperform risk being named and shamed—or even closed to new members.
As a result, active managers must work harder to prove their value, while investors have more tools to hold them accountable.
Making an Informed Choice: When Active Still Makes Sense
Should you ditch active management altogether? Not necessarily. Here’s how to decide if it fits your portfolio in 2025:
- Use the new ASIC Fund Comparison Tool to check how your funds stack up over 5 and 10 years, after fees.
- Consider active options in areas where the market is less efficient—like small caps, ESG, or niche sectors—rather than broad Australian or global equity funds.
- Ask your adviser (or the fund manager) about their process for incorporating new data, technology, and risk controls in a post-2024 world.
- Watch for fee reductions; many active funds are lowering costs to stay competitive, and new direct-to-investor models are emerging.
Ultimately, the active vs passive debate isn’t about picking sides—it’s about understanding where each approach adds the most value, and using data-driven tools to make smarter decisions.