74% of ASX active managers underperformed in 2025. How do you find the winners?

Please note this interview was filmed Wednesday 25 March, 2026.

Every year, the S&P Dow Jones Indices SPIVA Australia scorecard lands like a reality check for the active management industry. And every year, the numbers tell a similar story: most active managers fail to beat their benchmarks.

But 2025 turned the dial up. In a market that threw active managers exactly what they supposedly want - elevated dispersion, violent sector rotations, factor reversals - nearly three in four still couldn't keep pace with the index. The conditions were ripe. The results were not.

For investors, that raises a more important question: if most managers fall short, how do you actually find the winners, and is it worth trying?

This isn’t just a bad year. It’s a structural story, one that has profound implications for how investors allocate capital, pick managers and think about fees. Sue Lee, APAC Head of Index Investment Strategy at S&P Dow Jones Indices, puts it plainly:

“The investment is a zero-sum game. We have this total market performance, which is the aggregation of everyone. So if one person wants to outperform that benchmark, then somebody needs to underperform.”

That simple but powerful reality is reshaping the role of active management and forcing investors to rethink not just manager selection, but whether the odds are stacked against them from the outset.

Interview summary

A tough year, but not an outlier

The headline figure from the 2025 SPIVA Australia report is striking: around 74% of active equity managers underperformed the S&P/ASX 200. But Lee is quick to contextualise it.

“Every year, about 60% of Australian general equity managers underperform the S&P ASX 200. 74% is a little bit higher.”

In other words, while 2025 was worse than average, it still fits within a long-running pattern of persistent underperformance.

What makes the result more notable is the backdrop. Dispersion was elevated and leadership rotated sharply across sectors and factors, conditions that typically favour stock pickers.

Instead, many managers were caught on the wrong side of those shifts.

“There were a lot of changes underneath the market. Information technology, which was the best-performing sector in 2024, dropped more than 20% in 2025. Healthcare also fell by over 20%.”

At the same time, prior laggards rebounded and factor leadership flipped.

“Smaller companies started outperforming large caps, and some of the more popular factors in Australia, such as quality, underperformed the overall market, while value outperformed.”

With so many moving parts, even small positioning errors proved costly. As Lee said: “If you got your sector positioning wrong, it was hard to beat the benchmark.”

Why beating the market is getting harder

Beyond market conditions, Lee argues the bigger issue is structural.

“I believe that the professionalisation of the market and the increasing difficulty of active managers to provide outperformance is a structural trend.”

As more capital has shifted into the hands of professional investors, competition has intensified and inefficiencies have narrowed.

“There is increasing competition among professional investors, hence generating alpha has become even more difficult.”

Australia’s market structure adds another layer of difficulty. With a high concentration in a small number of large-cap stocks, it becomes harder for active managers to meaningfully differentiate without taking on additional risk.

“In markets with high concentration, it’s really hard for managers to overweight stocks that already have a large weight in the benchmark.”

If those dominant names perform strongly, underweight positions quickly become a drag on performance.

Where active management still worked

Despite broad underperformance in equities, there were areas where active managers added value.

In A-REITs, outcomes were heavily influenced by positioning in a single dominant stock.

“Goodman Group has over 40% of the S&P ASX 200 A REIT index… whether you have an overweight or underweight on this stock really determines whether the active fund outperforms.”

In 2025, that stock underperformed materially, rewarding managers who were underweight.

In fixed income, macro positioning drove results.

“Credit spreads continued to tighten, so active managers who took on more credit risk were likely rewarded.”

Managers who favoured shorter-duration bonds also benefited as long-dated bonds remained vulnerable to inflation risk.

The real risk investors overlook

One of the most important insights from the SPIVA data is not just how many managers underperform, but the magnitude of outcomes.

“Choosing the top-quartile funds, you would outperform… by at least 0.2%. But if you ended up picking the bottom quartile funds, you would have underperformed at least by 6.9% or even more.”

This creates a highly asymmetric payoff profile. The upside from selecting a top manager is modest, while the downside from choosing poorly can be severe.

“Investors need to understand… the risk of underperformance when you choose an underperforming manager is actually quite great.”

That dynamic raises the bar for due diligence and requires stronger conviction when allocating to active strategies.

A global pattern and the role of active

Australia is not an outlier. Across global markets, the pattern is remarkably consistent.

“In Australia, we are seeing 95% of global equity funds underperform over 10 years… and we are seeing similar numbers in markets like the US and Japan.”

While some segments, such as mid and small caps, show slightly better outcomes due to higher dispersion, the broader conclusion holds: most active managers underperform over time.

Despite this, Lee argues active management still plays a critical role.

“Active managers have an important role in the market, which is price discovery.”

By taking differentiated positions, active investors help set prices, while passive investors largely follow them.

However, expectations are shifting as outperformance becomes harder to achieve.

“They really need to come up with a strategy that can differentiate themselves and also justify the higher fees.”

For investors, the SPIVA data and Lee’s comments point to a more pragmatic reality. Finding the winners is possible, but it is difficult, and the rewards for getting it right are often modest compared to the risks of getting it wrong.

As Lee highlights, the combination of structural headwinds, market concentration and increasing competition among professional investors has made consistent outperformance harder to achieve.

That helps frame the question differently. Rather than assuming outperformance can be found broadly, the data suggests it may be more dependent on specific conditions, such as where there is greater dispersion or where managers can genuinely differentiate themselves.

In that context, the question isn’t just how to find the winners, it’s whether the odds justify the effort. For many investors, the takeaway from the SPIVA results is not to abandon active altogether, but to be more deliberate about how and where it is used.