For years, active fund managers have offered a plausible defence against the rise of passive investing.
The traditional argument for active management is that when volatility rises, stock returns diverge and uncertainty increases, skilled managers should be able to exploit inefficiencies and outperform. On the other hand, passive funds simply buy the market.
If active management was ever going to justify its fees, the first half of 2026 seemed tailor-made for that proposition. According to the latest SPIVA Australia Scorecard for H1 2026, stock dispersion rose sharply, both globally and in Australia, to levels not seen since the Global Financial Crisis.
The ongoing war in the Middle East elevated uncertainty surrounding oil prices, while AI-related growth expectations and rising long-term yields contributed to substantial performance differences across sectors and companies.
Even on the domestic front, Australian shares provided plenty of opportunities for active managers to prove their worth, with both sector and stock dispersion at decade highs. In plain terms, there was a much bigger gap between the best and worst-performing stocks. The market environment provided a ripe hunting ground for stockpickers.
Do the results tell the same story?
The short answer is not quite.
Despite these seemingly ideal conditions, a firm majority (78%) of Australian Equity General funds underperformed the ASX 200 in the first six months of the year. Notably, this is the second-highest underperformance rate seen since the launch of the scorecard in 2013.
Tougher conditions for bond managers
Fixed income was the one area where active managers found a better story to tell, despite facing less favourable market conditions during the first half of this year.
Australian corporate bond spreads remained near historically tight levels, which limited opportunities to add value by taking extra credit risk. A flatter yield curve also reduced the scope for managers to profit from interest rate bets. In short, many of the traditional levers active bond managers use to outperform were less effective than in recent years.
Despite these headwinds, Australian bond funds were the only category where a majority of managers outperformed their benchmark, although by a narrow margin.
The benchmark returned 2.3% in the first half of 2026, while active funds marginally exceeded that result, with average returns of 2.4%. However, the victory was hardly emphatic. The proportion of bond managers failing to beat the benchmark rose from 27% in 2025 to 44% in the first half of 2026.
The concentration conundrum
It is clear that rising dispersion alone may not be enough of a tailwind for active managers. If gains are concentrated in a shrinking number of companies, identifying winners becomes increasingly difficult, even when opportunities appear plentiful.
A potential explanation for the lacklustre results lies in the all-too-familiar concentration problem. While sector and stock dispersion widened, relatively few companies were responsible for driving overall market returns. SPIVA found that only 35% of ASX 200 stocks outperformed the index in the first six months of 2026.
Meanwhile, the combined weight of the largest 20 companies in the index increased from 61.0% to 63.4%. Naturally, as the pool of outperforming stocks narrows, the likelihood of identifying them successfully declines, which makes active stock selection more difficult.
Concluding thoughts
I don't view these results as a call to abandon active management. However, it does suggest we should be realistic about how difficult manager selection is.
SPIVA observed that among global equity funds, the rewards for choosing a winning manager were modest, while the penalties for choosing a losing manager were severe. The best-performing active funds only beat the benchmark by small margins, whereas the weakest funds lagged by much larger amounts.
The challenge is also compounded by survivorship. SPIVA found that after 15 years, more than half of funds had either merged or liquidated, meaning investors face not only the risk of selecting an underperforming manager, but also one that may not survive.
Many people approach the active versus passive debate rather plainly, by asking whether active managers can outperform. We know that some clearly can. The harder question is whether we can identify those managers beforehand.
Simonelle Mody
Also in this week's edition...
Thinking about an SMSF? Liam Shorte discusses red flags to watch out for before you sign anything.
For generations, Australian investors have backed banks, miners and dividends. Marcus Padley argues it's time to start looking elsewhere for growth
The housing debate tends to focus on prices, interest rates and deposits but Jade Xie thinks a 40 year mortgage might be the answer.
Zara Lyons believes the market has sent a clear message after earnings: it is no longer paying simply for quality, resilience or an earnings beat.
Helen Mason shares why she thinks Australian public credit may be the most compelling source of income in today's market.
August reporting season delivered strong earnings and larger-than-expected dividends, David Wilson and Christian Guerra unpack the key trends
Some of history's most important innovations changed the world while leaving investors much poorer. Roger Montgomery hypothesizes whether AI will destroy investor capital.
White paper of the week: How Australia Retires 2026 (Vanguard)
Curated by Simonelle Mody and Leisa Bell
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