Active vs. passive: BofA sees narrow leadership

Investing.com -- Active equity managers are narrowly ahead of passive strategies so far this year, according to Bank of America.

The bank’s analysts said in a note that “large cap actives were neck-and-neck with passive for a third consecutive month” as the S&P 500 rallied 5% in June.

Overall, 51% of funds outperformed the index last month, pushing year-to-date outperformance to 53%.

That is said to mark a significant improvement from 2024, when less than 40% of funds beat their benchmarks.

Value strategies stood out, delivering the strongest returns, according to the bank.

“Value funds generated the most alpha (+60bp on avg., 70% hit rate),” BofA noted. Growth funds also performed well, with a 60% hit rate in the first half, while only 38% of Core funds outperformed.

However, BofA says the market’s narrow leadership remains a headwind. Just 29% of S&P 500 constituents outperformed the index in the second quarter, “the second lowest quarterly reading in our data history going back to the 1980s,” BofA wrote.

Despite this, wider performance dispersion may have helped active managers.

Outside of large caps, performance was weaker. “Small and mid-cap funds underperformed in June for a third consecutive month,” BofA noted, with hit rates of just 23% and 45%, respectively. Only 14% of mid-cap funds are currently ahead of their benchmarks year-to-date.

Still, BofA believes the outlook for equity hedge funds appears more promising. They delivered a 4.3% gain in the first half of 2025, while macro and CTA funds fell 3.0%.

With leadership concentrated in big tech, BofA’s data shows that “active is still one step ahead YTD.”

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