Why Actively Managed Bond Funds Outperform Index Funds More Often Than Stocks
Multiple research results now point to what seems like a consistent pattern: active bond funds tend to outperform their passive peers more often than stock funds do. It’s not a matter of belief or one-off studies either. This trend keeps showing up across timeframes, categories, and methodologies. The takeaway isn’t that active always wins. But in bonds, it seems the odds for actively managed funds are better.
Active bond funds: higher success rates
Start with the raw data. According to Morningstar, fewer than 1 in 4 active equity funds managed to survive and outperform passive peers over the 10 years ending December 2023. That’s pretty bleak.
But in the bond market? A very different picture. About 80% of surviving active core bond funds beat their index counterparts over 15 years. In the same timeframe, only 20% of large-cap stock funds did so (Schwab).
Even more recently, in the intermediate core bond space, Institutional Investor reported that 72% of active funds outperformed in the 12 months ending June 2024. The reasoning? Probably their ability to stay flexible by adjusting duration, credit exposure, even sector when the market shifts around.
A 2024 paper by Choi, Cremers, and Riley went further. They found no evidence that the average active bond fund underperforms. In fact, the opposite. Funds with high “active share” (a measure of how different they are from their benchmark) not only outperformed, but did so consistently, especially when paired with strong past performance.
That same research showed these funds tended to earn higher alpha, experienced less downside, and were generally less sensitive to broader drawdowns. Statistically speaking, those are traits most investors would probably welcome.
Also, Eaton Vance showed similar results: active bond funds outperformed their passive peers across 3-, 5-, and 10-year periods in multiple fixed-income categories.
So, what’s driving this?
Well, the bond market isn’t just a less exciting version of the stock market. It works differently. It’s less transparent, less liquid in parts, and shaped heavily by participants who aren’t always return-drive such as central banks, insurers, big pension plans. That creates structural inefficiencies that active managers can lean into (Fidelity).
They can shift positioning quickly in response to interest rate risk or credit events. Passive funds, on the other hand, have to stay put. And in many cases, as PIMCO explains, so-called “passive” bond funds aren’t really passive. They still need to trade often intensel to track sprawling and sometimes illiquid indexes. That brings in extra friction and tracking error.
Quick comparison
| Metric | Active Bond Funds | Active Stock Funds |
|---|---|---|
| Long-term outperformance rate | Much higher | Much lower |
| 15-year survivor outperformance (core) | ~80% | ~20% |
| Market efficiency | Lower (more anomalies) | Higher (fewer anomalies) |
| Flexibility to exploit inefficiencies | High | Lower |
| Passive benchmark tracking | More difficult | Easier |
Final thought
So, no bold predictions here. Just a quiet acknowledgment that if you’re looking at the case for active management, bond funds seem to have more going for them structurally. More inefficiencies. More room to maneuver. Less crowded informational edges. That doesn’t mean they’ll always win, but it does mean they’re playing a game that might be more winnable.
If you insist on going active, bonds might be the smarter place to start.