Active vs Passive Investing: What the SPIVA Scorecards Show

Active investing means paying a fund manager to choose investments in an attempt to beat a market index. Passive investing means buying a fund that simply holds the index. Over long periods, most actively managed stock funds in both the US and Canada have trailed their benchmark indexes after fees, according to S&P Dow Jones Indices’ SPIVA scorecards.

In short: before costs, active managers as a group own the market, so as a group they earn roughly the market’s return. After costs, the average active dollar must trail the average passive dollar. The SPIVA data shows this playing out: over 20 years to the end of 2025, about 93% of US large-cap funds trailed the S&P 500, and over 10 years, about 99% of Canadian equity funds trailed the S&P/TSX Composite.

What each approach does

An active fund has a manager or team that researches companies and decides what to buy, what to avoid, and when to trade. The goal is to beat a benchmark, such as the S&P 500 or the S&P/TSX Composite, by enough to cover the fund’s higher costs.

A passive fund (an index fund or index ETF) holds what the index holds. The goal is to match the benchmark’s return minus a small fee. It makes no forecasts.

The distinction is not perfectly clean. Choosing which index to follow is itself an active decision, and many “index” products follow narrow or engineered rules. But the core question is simple: is it worth paying more for someone to try to beat the market?

The arithmetic of active management

In 1991, economist William Sharpe published a short paper called “The Arithmetic of Active Management” in the Financial Analysts Journal. His argument needs no data:

The market return is the average return of every dollar invested in it.
Passive investors, by definition, earn the market return before costs.
So active investors, as a group, must also earn the market return before costs. Their winners and losers net out.
Active management costs more. So after costs, the average actively managed dollar must earn less than the average passively managed dollar.

This does not say no active manager can win. It says the average one cannot, after fees. Any individual outperformer is matched by an underperformer elsewhere.

A worked example

Suppose the market returns 8.00% in a year. The average active equity fund matches the market before costs, and so does an index fund.

	Index fund	Average active fund
Return before costs	8.00%	8.00%
Annual fee	0.05%	0.64%
Extra trading costs	about 0.00%	assume 0.20%
Return after costs	7.95%	7.16%

The fees are the 2024 asset-weighted averages for US index equity mutual funds and actively managed equity mutual funds from the Investment Company Institute’s Trends in the Expenses and Fees of Funds, 2024. The trading cost is an illustrative assumption. On $100,000, the gap in one year is $790. Over decades, that difference compounds (see how compound growth works).

What SPIVA measures

S&P Dow Jones Indices has published the SPIVA (S&P Indices Versus Active) scorecards since 2002. They compare actively managed funds with appropriate benchmark indexes over several time horizons. Two design choices matter:

Fund returns are net of fees. That is what investors actually received. Index returns have no fees deducted, since an index is not a product.
Survivorship bias is corrected. SPIVA counts every fund that existed at the start of the period, including the ones that later closed or merged. Funds usually disappear after poor performance, so leaving them out would make the survivors look better than the group really was.

The US results

From the SPIVA U.S. Year-End 2025 Scorecard (data to December 31, 2025), the share of all actively managed large-cap US equity funds that underperformed the S&P 500:

Period	Underperformed the S&P 500
1 year	78.8%
3 years	66.8%
5 years	89.0%
10 years	85.6%
15 years	89.9%
20 years	92.9%

Across all US domestic equity funds compared with the S&P Composite 1500, 95.0% underperformed over 20 years.

The same report shows the gap in returns. Over the 20 years to the end of 2025, the S&P 500 returned an annualized 11.00%, while large-cap funds returned 9.62% a year on an asset-weighted basis. At those rates, $10,000 grows to about $80,600 in the index versus about $62,800 for the average large-cap fund dollar.

One year is noisy. In 2024, SPIVA found 65% of large-cap funds underperformed; in 2025 it was 79%. The longer the horizon, the more consistent the result.

The Canadian results

From the SPIVA Canada Year-End 2025 Scorecard, the share of active Canadian Equity funds that underperformed the S&P/TSX Composite:

Period	Underperformed the S&P/TSX Composite
1 year	93.4%
3 years	96.3%
5 years	95.9%
10 years	98.8%

In 2025 alone, the S&P/TSX Composite rose 31.7%, while Canadian Equity funds gained 22.1% on an equal-weighted basis and 22.7% asset-weighted.

The picture is not uniform. In 2025, Canadian Dividend & Income Equity funds (up 19.5% equal-weighted) slightly beat their benchmark, the S&P/TSX Canadian Dividend Aristocrats Index (up 19.1%). Over 10 years, though, 96.9% of funds in that category still underperformed.

Costs are a big part of the Canadian story. Many Canadian mutual funds have historically carried higher fees than US funds, partly because they embedded a trailing commission for the selling advisor, typically about 1% a year on actively managed equity funds according to the Canadian Securities Administrators’ Consultation Paper 81-408 (2017). Those costs are explained in how investment fees work.

Survivorship bias, in numbers

Fund closures are not rare. The SPIVA reports for year-end 2025 found:

US: of the 760 large-cap funds that existed at the start of the 20-year period, only 34.6% survived to the end. Nearly two-thirds were merged or liquidated.
Canada: over the 10-year period, 47.1% of Canadian Equity funds were merged or liquidated.

If you look up “the 10-year record of Canadian equity funds” on a fund database today, you will mostly see the funds that survived. The ones that did badly enough to be closed are no longer on the list. That is why naive comparisons tend to flatter active management.

Can you pick the winners in advance?

Some active funds do beat their benchmarks, even over long periods. The practical problem is identifying them ahead of time. S&P’s Persistence Scorecards test whether top performers stay on top. The Canada Persistence Scorecard (Year-End 2025) found that, apart from small-cap funds, none of the top-quartile funds in any reported Canadian domestic equity category in 2021 remained in the top quartile in each year through 2025. The US Persistence Scorecard (Year-End 2025) tells a similar story: for example, only 4.5% of above-median large-cap funds stayed above median in each of the following years, below the 6.25% that pure chance would produce.

Past performance, in other words, has been a weak guide to future performance, which is what every fund prospectus already says.

The evidence is strongest against active management in large, heavily researched stock markets. The honest exceptions and nuances:

Some categories and periods are better for active managers than others. Results swing with market conditions, as the 2024 and 2025 US figures above show.
Low-cost active funds start with a smaller handicap than high-cost ones.
Investors may want things an index does not offer, such as excluding certain industries, or a strategy with lower volatility. Those are reasonable choices, as long as the cost is understood.
Advice is not the same as active management. An advisor can help with planning, taxes, and behaviour while still using index funds. See investor behavior mistakes for why behaviour can matter as much as fund choice.

What can go wrong with passive investing

Passive is not risk-free:

You get the full market decline in a bear market, with no manager trying to cushion it. See bull and bear markets.
Cap-weighted indexes can become concentrated in a few very large companies.
Not every “index” fund is cheap or broad. Narrow, thematic, or leveraged index products can be expensive and risky.
The benchmark you pick is an active choice. A fund tracking a single sector or country is a concentrated bet even if it is passive.

The short version

Before costs, active investors as a group earn the market return; after costs, they must trail it. S&P’s SPIVA scorecards confirm this across the US and Canada: through 2025, about 93% of US large-cap funds trailed the S&P 500 over 20 years, and about 99% of Canadian equity funds trailed the S&P/TSX Composite over 10 years, with many losers closing along the way. Some active funds win, but finding them in advance has proved very hard. Cost is the one factor you can control.