Active equity managers have continued to struggle to justify why investors should opt to pay higher fees for a stock picker. And last year’s results don’t help.

Most actively managed equity funds underperformed in 2024 — just as they had done in 2023. But even as the majority of large- and midcap funds failed to beat their benchmarks, active small-cap managers did see real gains.

S&P Dow Jones Indices’ annual SPIVA U.S. Scorecard showed that 65 percent of all active large-cap U.S. equity funds underperformed the S&P 500. This underperformance rate is worse than the 60 percent rate in 2023 and the 64 percent average observed over the SPIVA Scorecard’s 24-year history. With midcaps, 62 percent of the active funds that S&P DJI tracked lagged the S&P Midcap 400.

The findings from S&P’s annual scorecard supports what academics have been saying for decades — that active management typically underperforms passive strategies due to higher fees and the difficulty of consistently beating the market.

“Active equity manager underperformance rates were relatively consistent with the prior year,” said S&P DJI’s head of U.S. index investment strategy Anu Ganti. While noting that 2024 mirrored 2023 in many ways — double-digit S&P 500 gains and mega-cap dominance — Ganti also pointed to key shifts, including a mid-year rotation toward smaller stocks, rising Treasury yields, and disinversion of the yield curve, all amid the uncertainty driven by the presidential election.

Meanwhile, active small-cap managers saw record outperformance, with 70 percent of all U.S. small-cap funds exceeding their benchmarks. The percentage of small cap funds that failed to meet their benchmark was the lowest across more than two decades of annual scorecards. That is bittersweet news. S&P said active small cap funds outperformed because smaller companies overall significantly lagged their larger peers. (The S&P 500 and the S&P SmallCap 600 was separated by a 16 percent return differential.)

The report also highlighted that active funds often did worse the longer their track records were. (That raises questions for investors that are urged to hold onto their funds for the long-term, rather than making short-term moves.) The rate at which active funds underperformed typically rose across asset classes as time horizons lengthened. At the one-year mark, in 7 of 22 equity categories the majority of funds outperformed. Over the 15-year period ending December 2024, there were no categories in which a majority of active managers outperformed.

Mega-cap stocks continued to outperform smaller stocks last year, but the pattern wasn't linear, according to S&P’s report. The contribution from the top five stocks to S&P 500 performance spiked to 94 percent from 39 percent in the second quarter, followed by a sharp decline to 10 percent in the third quarter, and a rebound back up to 71 percent in the fourth. Although only 28 percent of stocks outperformed for the year, 66 percent of stocks beat the S&P 500 during the third quarter, the highest percentage of the year. 

While active equity managers continued to struggle, fixed income managers had a mixed year, with pockets of high outperformance. Fixed income results were generally better, with an average one-year underperformance rate of 41 percent across all fund categories and majority outperformance reported in 11 out of 16 categories. Ganti added that “it was an overall better year for fixed income managers, particularly those situated within the investment grade space.”