It’s no wonder passive funds are grabbing investors’ attention. We’ve had yet another six-month period where a large chunk of professional stock pickers failed to outperform the tracker funds in the same sector.
Only 42% of active funds outperformed their tracker alternatives in the first half of 2026, matching the same reading from a year earlier.
Investors are taking note. Analysis of AJ Bell DIY investor activity between January and June 2026 found that tracker funds accounted for more than two thirds of the top 100 most popular funds, while actively managed funds featured heavily among the biggest outflows. Investors are voting with their wallet and passive is winning.
Global funds once again struggle in their quest to outperform
Fund managers with a global equity remit have a vast universe from which to find the best opportunities. Sadly, it looks like many were fishing in the wrong places.
Only 22% of actively managed global equity funds beat index-tracking funds in the first half of 2026, the second worst period since AJ Bell launched this report in 2021.
Global equity tracker funds have become the default choice for first-time investors. Low costs and broad exposure to companies around the world make them easy-to-understand investment products. For some people, that’s all they need.
It wasn’t simply a bad six months for global active funds. The five-year and 10-year data is even worse, pointing to significant underperformance. Part of the problem is down to market concentration, with global indices heavily driven by a handful of stocks dominated by the technology sector. Any manager with less exposure to these blockbuster names than the global benchmark might have struggled to outperform. For example, MSCI World has 1,283 constituents yet the top 10 holdings account for 25.7% of the index.
Emerging markets and Asia Pacific funds did the job
Equity markets were surprisingly resilient in the first half of 2026, despite a backdrop of war in the Middle East, heightened geopolitical tensions, new inflationary pressures and a massive shift in interest rate expectations.
Emerging markets and Asia Pacific ex-Japan regions were among the best performing parts of the investment universe. Their success was helped by a market rotation from the US mega cap tech stocks spending big money on AI (i.e. most of the Magnificent Seven) to beneficiaries of this spend.
Chip companies ruled the roost, including memory chip specialists who benefited from a demand spike in a supply-tight market. Many of the big chip stocks are Asian companies listed in Taiwan and South Korea.
While certain emerging market stocks like Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung Electronics may be household names for more experienced investors, it’s fair to say many people will have only learned about SK Hynix’s existence this year.
SK Hynix’s 300% share price gain in the first half of 2026 has led to the South Korean chip group now representing nearly 8% of both the MSCI Emerging Markets and MSCI AC Asia Pacific ex-Japan indices by weighting.
Nearly two in three (63%) actively managed emerging market equity funds beat trackers during the first half of 2026. This result is why certain investors continue to put their faith in active management. It’s not just a flash in the pan as long-term performance data shows a similar proportion of outperformance.
Asia Pacific ex-Japan active funds scored their best period of outperformance since AJ Bell’s report launched in 2021, with 65% beating trackers.
UK, Europe and North American funds let the side down
Eastern-focused active funds had a good run, but the same cannot be said of those in the West. North American, European and UK active funds all recorded low levels of outperformance versus their tracker counterparts between January and the end of June 2026.
What worked in 2025 didn’t repeat itself entirely in the first half of 2026, with previously strong areas like gold mining, defence, and pharma/biotechnology losing momentum. Active managers might have been caught out by the rotation and didn’t move fast enough, or they were simply parked in the wrong sectors.
Overall, active managers are still falling short
Despite a few bright spots, active fund managers remain in the doldrums when looking across the market.
The picture is murkier on a longer-term basis, with a mere 21% outperforming over the past 10 years – the lowest figure since the AJ Bell Manager versus Machine report began.
Retail investors are voting with their feet
Looking at the thousands of different funds bought and sold by AJ Bell DIY investors in the past six months, 62% were active and 38% were trackers. However, focusing on the most popular funds paints a different picture.
Of the 100 most popular funds based on net buys, 69% were trackers and 31% were active. Of the 100 least popular funds based on net sells, 85% were active and 15% were trackers, suggesting a clear preference in favour of passive.
Even the most popular active funds on the list had a 'tracker tilt’. These are multi-asset funds from AJ Bell and the Vanguard LifeStrategy series, which are active in terms of asset allocation but achieve their market exposure using tracker funds.
Two of the top five funds with the biggest net sells in the first half of 2026 are run by individuals who previously held ‘star manager’ status. These are Terry Smith’s Fundsmith Equity and Nick Train’s Lindsell Train UK Equity. Investors are abandoning them after a long period of underperformance, effectively turning off the lights for the last remaining star managers in the UK. Read the full Manager versus Machine report for July 2026.
Dan Coatsworth: Head of Markets
Dan Coatsworth is AJ Bell's Head of Markets. Dan has been with the company since December 2012 and has more than 18 years' experience in the industry, following the markets and all things investing. He...
