Active global real estate funds recorded the highest one-year success rate of any category studied: 73.7%, up from just 15% a year earlier, a gain of more than 58 percentage points. US real estate active funds also improved, reaching 53% for the year. Over 10 years, both US real estate (42%) and global real estate (45%) outpaced most equity category benchmarks.
Cost is the clearest predictor of success
Across all categories and time frames, the Morningstar data points to one variable with consistent predictive power: fees. Active funds in the cheapest cost quintile beat passive peers at a 33% rate over 10 years — versus only 20% for funds in the most expensive quintile. That 13-percentage-point gap held across asset classes.
In US large-blend, for example, the cheapest funds succeeded 23% of the time over 10 years, compared with 9% for the priciest. The spread was equally stark in emerging markets: 52% for the cheapest quintile against 27% for the most expensive.
The cost finding aligns with a broader pattern highlighted by the report’s asset-weighted return analysis. Investors have, on balance, directed capital toward better-performing active funds: in 16 of 20 categories studied, the average dollar invested in active funds outperformed the average active fund on an equal-weighted basis, suggesting that advisors and their clients are gravitating toward lower-cost, higher-quality active strategies.
“Investors have chosen active funds wisely,” the Morningstar report concluded. “Over the past 10 years, the average dollar invested in active funds outperformed the average active fund in 16 of the 20 categories examined. That implies investors favor cheaper, higher-quality strategies.”