Are Actively Managed Funds Worth It in Australia? A 2026 Perspective

The line between active and passive management has become less distinct in recent years. Many funds now blend traditional active strategies with rules-based or quantitative approaches, sometimes referred to as ‘smart beta’. This means some funds use systematic methods to select investments, aiming to capture certain factors or themes while still making selective active decisions.

Active managers rely on research, analytics, and their own judgement to make investment calls. Their goal is to outperform the market, but this comes with higher costs and no guarantee of success. While technology has given managers access to more data and analytical tools, the challenge of consistently beating the market remains substantial.

Performance is a key consideration for anyone weighing up active management. In recent years, some active funds have managed to outperform their benchmarks, particularly during periods of market volatility or when certain sectors have surged ahead. However, over longer periods, many active funds have struggled to consistently deliver better returns than comparable index funds, especially after accounting for fees.

• Australian shares: Some active funds have outperformed the broader market in the short term, especially during times of rapid sector rotation or heightened volatility. However, this outperformance is not universal or consistent across all funds.

• Global equities: Active managers with exposure to sectors like technology, healthcare, or renewables have sometimes delivered stronger results than the broader global index. Still, the proportion of funds consistently beating the benchmark remains limited.

• Fixed income: In periods of changing interest rates, some active bond managers have added value by adjusting their portfolios to manage risks. Yet, as with equities, consistent outperformance is rare over longer horizons.

The recurring theme is that while some managers excel in certain market conditions, very few are able to outperform year after year. For most investors, the higher fees associated with active management can erode any gains made above the benchmark.

One of the main drawbacks of active management is cost. Actively managed funds typically charge higher management fees than passive funds. While competition and technology have led to some fee reductions, the gap remains significant. Investors should pay close attention to the total fees charged, including management and performance fees, as these can have a substantial impact on long-term returns.

Regulatory changes in Australia have increased the focus on transparency and accountability for fund managers. There is now greater scrutiny of how funds report their performance and fees, and underperforming superannuation funds face pressure to justify their strategies. This environment encourages clearer communication from fund managers and helps investors make more informed choices.

• Look for: Funds that clearly explain their investment approach, have a transparent fee structure, and provide a track record of performance.

• Watch out for: Funds that charge high fees but closely mimic the index (sometimes called ‘closet indexers’), as these may not provide value for the extra cost.

Active management is not suitable for everyone, but it can play a role in certain portfolios. You might consider actively managed funds if you:

• Want exposure to specific sectors, emerging markets, or complex asset classes where research and expertise can add value.
• Prefer a hands-off approach but want a professional manager making tactical decisions, especially during uncertain or volatile periods.
• Are comfortable paying higher fees for the potential of outperformance, while accepting the risk that returns may not exceed those of passive funds.

For many Australian investors, a mix of low-cost index funds and select active strategies can offer a balanced approach, combining cost efficiency with the potential for higher returns in certain areas.

Several trends are shaping the active management landscape in 2026:

Technology and Data

Advancements in technology are giving fund managers access to more sophisticated research tools, real-time analytics, and alternative data sources. These tools can help managers identify opportunities and risks more quickly, but they also raise the bar for delivering consistent outperformance.

ESG (Environmental, Social, Governance) Investing

There is growing demand for funds that consider environmental, social, and governance factors in their investment decisions. Active managers often have more flexibility to screen for sustainability, climate risk, and ethical considerations, which can appeal to investors seeking alignment with their values.

Customisation and Direct Indexing

Investors are increasingly seeking personalised investment solutions. Direct indexing and managed accounts allow individuals to tailor their portfolios to specific preferences, tax situations, or ethical considerations. In some cases, these options can offer a level of customisation that rivals traditional active funds, sometimes at a lower cost.

Choosing between active and passive funds depends on your investment goals, risk tolerance, and preferences. Consider the following when making your decision:

• Cost: Higher fees can eat into returns, so weigh the potential benefits of active management against the additional cost.
• Performance: Look at long-term performance records, not just recent results. Consistent outperformance is rare.
• Transparency: Choose funds that clearly communicate their strategy, fees, and track record.
• Personal goals: If you want exposure to niche sectors or have specific ethical considerations, active management may offer more flexibility.

For most investors, a diversified approach that combines low-cost index funds with carefully selected active strategies can provide a good balance of risk, cost, and opportunity. As the investment landscape continues to change, staying informed and regularly reviewing your portfolio will help you make the most of your options in 2026 and beyond.