Passively Managed Funds in Australia: 2025 Trends and Insights

Australia’s investment landscape is undergoing a seismic shift in 2025, with passively managed funds capturing the attention—and wallets—of investors from Bondi to Broome. As high-fee, actively managed funds come under scrutiny, a growing number of Australians are embracing passive investment strategies for their simplicity, transparency, and cost savings. But what exactly does ‘passively managed’ mean, and why is it surging in popularity right now?

What Are Passively Managed Investments?

Passively managed investments, often referred to as index funds or ETFs (exchange-traded funds), aim to replicate the performance of a specific market index, such as the ASX 200. Instead of a fund manager handpicking stocks in a bid to ‘beat the market,’ passive funds automatically track an index’s holdings, reducing both costs and the risk of underperforming the market.

• Lower fees: No need for expensive research or frequent trading, so management fees are typically a fraction of those charged by active funds.

• Transparency: Investors know exactly what they’re buying, as portfolios closely mirror the underlying index.

• Performance: Decades of data show that, after costs, most active managers fail to consistently outperform passive benchmarks.

2025: The Year of the Passive Boom

Several trends are converging to supercharge passive investment uptake in Australia this year:

• Superannuation Reforms: The federal government’s 2025 tweaks to the Your Future, Your Super performance test now reward funds with lower fees and consistent long-term returns—traits often found in passive strategies.

• Fee Transparency Laws: ASIC’s new disclosure rules make it easier for Aussies to see exactly how much they’re paying for fund management, putting active managers under pressure to justify their costs.

• Tech-Driven Accessibility: Online trading platforms like Stake and Pearler continue to democratise ETF investing, with some now offering fractional shares and zero-brokerage trades on ASX-listed passive funds.

• Inflation and Rate Volatility: With market volatility still a concern post-2023, many investors are favouring the steady, predictable approach of tracking the market rather than trying to outguess it.

Case in point: In Q1 2025, the total assets in Australian-listed ETFs topped $180 billion, with over 65% allocated to broad-market index funds. Vanguard’s Australian Shares Index ETF (VAS) and BetaShares’ Australia 200 ETF (A200) remain among the top picks for local investors.

Should You Go Passive? Key Considerations for 2025

While the appeal is clear, passively managed funds are not a silver bullet for every investor. Here’s what to weigh up:

• Long-Term Horizon: Passive investing works best when you’re committed for the long haul—think 7+ years. Short-term market swings are less relevant when your goal is steady, compounding growth.

• Market Exposure: Passive funds give you broad market exposure, but may lack the targeted sector plays or risk management strategies of active funds.

• Tax Efficiency: Most Australian ETFs are structured for tax efficiency, but check for capital gains events if you’re frequently switching between funds.

• Personal Values: ESG (Environmental, Social, Governance) passive funds are booming, letting investors align their portfolios with their ethics without sacrificing cost or performance.

Ultimately, many Australians are finding a blend of passive and active strategies—tailored to their goals and risk tolerance—delivers the best of both worlds.

The Verdict: Passive Isn’t Just a Trend—It’s a Portfolio Staple

The era of passively managed investing is in full swing, with 2025 shaping up as a landmark year for Australian investors. As regulatory reforms and digital innovation continue to level the playing field, expect passive strategies to become a cornerstone of the modern Aussie portfolio. If you haven’t already, now is the time to review your investment mix and consider how passive funds could help you build wealth, reduce costs, and ride out market bumps with confidence.