Nearly 8 in 10 Active US Stock Funds Lost to the Index in 2025

New Iran sanctions and a chip sell-off pulled stocks lower, though the Dow squeezed out a small gain.

The quick scan: Monday was a jittery, headline-driven session. Treasury Secretary Bessent was expected to detail fresh Iran sanctions after President Trump threatened "economic D-Day," US-Canada trade talks collapsed into reciprocal tariff threats, and semiconductors sold off ahead of Nvidia's earnings and the Fed's Jackson Hole symposium later this week. The S&P 500 slipped 0.28% to 7,652.86, the Nasdaq took the worst of the chip weakness, and the Dow was the lone index to finish higher. It was exactly the kind of restless tape that tempts investors, and active managers, to prove they can dodge the noise.

S&P 500: -0.28% to 7,652.86 – gave back 21.51 points from Friday's 7,674.37 close as chip weakness outweighed steadier sectors elsewhere
Dow Jones: +0.26% to 53,417.16 – the only major index to close higher, lifted by defensives and industrials as money rotated out of technology
NASDAQ: -0.76% to 25,980.19 – the day's laggard, dragged down by a semiconductor sell-off ahead of Nvidia's results later this week

What's driving it: Three worries stacked up at once. New US sanctions on Iran revived geopolitical risk, the breakdown in US-Canada trade talks raised the spectre of fresh tariffs, and chipmakers slid as traders de-risked before Nvidia reports. Overhanging all of it is Jackson Hole, where new Fed Chair Kevin Warsh delivers a closely watched keynote on Friday and markets are hunting for any signal on September. The pattern was textbook risk-off in one corner and rotation in another: technology and small caps fell together, while the Dow's more defensive mix held up. None of it is a verdict on the economy. It is a market repricing several unknowns in a single afternoon, which is what markets do while they wait for the actual news.

Bottom line: A day like this is precisely when active managers make their pitch: we can sidestep the chip rout, lean into the Dow, read the headlines for you. Today's article is the quiet rebuttal. Across a full year of days exactly like this one, nearly eight in ten of them still finished behind a plain index. The noise practically begs you to do something clever. The 25-year scorecard says the something clever is usually what costs you. On a session that rewarded sitting still in the Dow and punished chasing tech, that lesson landed in real time.

If the Pros Can't Beat the Index, Why Are You Trying To?

The scoop: Picture ten of the most credentialed stock pickers in America. Each runs a large-cap US fund, each has a research team, a Bloomberg terminal and a single mandate: beat the market. In 2025, eight of the ten lost to a machine that does nothing but hold the index and never breaks for lunch.

That, roughly, is the picture painted by the year-end 2025 SPIVA Scorecard from S&P Dow Jones Indices. It is not a hot take or a marketing pitch. It is a tally, kept twice a year for a quarter of a century, and this year's edition is a hard read for anyone who believes a clever manager earns their keep.

What SPIVA actually measures.

SPIVA stands for S&P Indices Versus Active. Twice a year, S&P Dow Jones Indices lines up thousands of actively managed funds against the benchmark each one is supposed to beat, then counts how many fell short. It has run for 25 years, which makes it one of the longest continuous scorekeepers in the business. The 2025 edition, compiled by Anu R. Ganti, Davide Di Gioia, Nick Didio and Liam Flaherty, does the counting without mercy.

The headline number.

In 2025, 79% of active large-cap US equity funds underperformed the S&P 500. Nearly eight in ten. That is worse than the 65% who fell short in 2024, and it ranks as the fourth-worst year for active large-cap managers in SPIVA's entire 25-year history. The index they were chasing finished the year up 18%, notching 39 record closing highs along the way.

Here is the part that stings for the industry. This was not a hard, choppy, treacherous market where a steady hand might have shone. It was a boom. In theory, a rising market is exactly where a skilled manager should prove their worth, leaning into the leaders and sidestepping the laggards. In practice, 2025 did the opposite, and the stronger the market ran, the further behind most of the professionals fell.

It was not just the big funds.

You might expect the pros to have an edge in the quieter corners of the market, where fewer eyes are watching and mispricing is easier to find. The scorecard says otherwise. In 2025, 55% of mid-cap funds and 41% of small-cap funds also trailed their benchmarks.

Travel abroad and the story rhymes. 63% of international funds lagged, 76% of global funds, 70% of international small-cap funds, and 53% of emerging-market funds. Different asset class, different pitch, same disappointing punchline.

The winners rarely stay winners.

The natural comeback is: fine, most managers lose, so I will simply pick the ones who win. SPIVA has an answer for that too, and it is brutal. Persistence, the tendency for a top fund to keep being a top fund, sits close to zero. Of the large-cap funds that finished above the median in one period, only 4.5% stayed above the median through the following period.

Read that again. Being good this year told you almost nothing about next year. A coin toss would keep a fund above the median roughly half the time. Real funds managed it 4.5% of the time. The hot streak you paid up to join tends to end shortly after you arrive.

Why is beating the index so hard?

It helps to remember what the index really is. The S&P 500 is not a lazy competitor sitting still. It is the pooled judgement of every serious investor in the market, weighted by company size, with its losers quietly dropped and its winners left to compound. To beat it, a manager has to be right more often than that entire crowd, and by a wide enough margin to cover their own fees and trading costs on top.

In a year like 2025, when a handful of very large companies did much of the heavy lifting, a manager who was even slightly light on those names got left in the dust. Costs finish the job. A fund charging 1% a year starts every race a step behind, and compounding stretches that gap wider with each passing year.

The honest counter-argument.

It would be lazy to hand you SPIVA as the final word, so here is the pushback. Some academics, Martijn Cremers and colleagues among them, argue that SPIVA's methods can understate how active managers really do, depending on how funds are weighted and which benchmarks they are measured against. It is a live debate, not a settled verdict, and useful to know before anyone treats 79% as scripture.

The scorecard also insists on a caution of its own: past underperformance is no promise of future underperformance. This year's laggards are not doomed to lag next year, and the handful who won are not guaranteed to repeat. The data describes a powerful tendency across thousands of funds and many years. It does not forecast any single fund's next twelve months.

What it means for the rest of us.

Strip away the percentages and the deeper point is quietly freeing. If the people who do this full-time, armed with every resource money can buy, mostly cannot beat a plain index in a good year, then the pressure you may feel to hunt down the clever fund, the star manager or the winning system is largely self-imposed.

Owning the whole market at low cost and then leaving it alone is not a consolation prize for people who lack the skill to do better. On this evidence, it is the choice most of the professionals quietly wish they had made. It is also, as it happens, the cheapest option on the shelf and the one that asks the least of your time and your nerves.

Actionable takeaways for L-Plate Retirees:

• Treat "I'll just pick the winners" as the trap it is. With persistence near 4.5%, last year's star fund carries almost no information about next year's. Chasing the recent leader feels like strategy, but the numbers say it is closer to buying a lottery ticket after reading the last draw.

• Judge a fund by its costs, not its story. Fees are the one thing you can see clearly in advance and the one thing you fully control. A compelling narrative is free to tell and expensive to own, and over decades the drag from high fees quietly compounds against you.

• Lengthen your scorecard. One year, even a booming one, tells you very little about whether a manager has genuine skill. If you insist on judging any approach, judge it over five years or more, and be suspicious of anyone waving a single dazzling twelve-month run.

• Notice when a rising market makes you restless. 2025 climbed 18%, and still most active funds fell behind. The urge to do something clever tends to peak exactly when doing nothing was the winning move. Restlessness is not a signal to act on.

• Separate skill from structure. Favouring a broad, low-cost approach is not an insult to fund managers' intelligence. It is a recognition that the structure of the market makes sustained outperformance rare, even for the talented, and that you do not need to win that particular game to retire comfortably. The contest that matters is funding the life you want, not topping a manager's benchmark, and those are not the same race.

Your Turn:
If eight in ten professionals with every advantage still lost to the index in a rising market, what exactly are you paying for when you choose an active fund over a plain one? 
When did you last pick a fund or manager because of a great recent run, and how did the years after that run actually turn out? 
Where in your own portfolio are you still hunting for an edge, and is that hunt earning its keep or just keeping you busy?

👉 Hit reply and share your thoughts – your answers could inspire fellow readers in future issues.

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