Active vs Passive Investing in South Africa remains a hot topic (even if we are behind the rest of the world in that regard). Costs are coming down, index-tracking ETFs are multiplying, and cocktail-party talk has moved from Apple’s share price to whether you really need an expensive fund manager. Morningstar’s inaugural South African Active/Passive Barometer (year-end 2024) cuts through the noise by asking a single, investor-focused question:
“If I had picked an actively managed unit trust five or ten years ago, what were my odds of beating a low-cost passive fund in the same category after fees?”
The answer, unsurprisingly, is “it depends”—on asset class, time horizon, and fees. Below we unpack the numbers and translate them into practical steps you can take today.
Morningstar compares every active fund with the asset-weighted performance of the passive funds that were actually available at the start of each period. This is important:
1. Real-world benchmark – not a cost-free index nobody can buy.
2. Survival matters – funds that shut down mid-period count as failures.
3. Time horizons – one, three, five and ten-year “success rates” show whether skill persists or mean-reverts.
These tweaks make the findings far more relevant than the usual league table skims.
| Period | Active success rate |
|---|---|
| 1 year | 83.6 % |
| 3 years | 58.8 % |
| 5 years | 53.7 % |
| 10 years | 25.5 % |
A bumper year for mid- and small-caps in 2024 meant four out of five active SA equity managers beat their passive peers. Over a decade, however, only one in four survived and outperformed. The message:
South African diversified bond managers delivered a solid 55 % success rate in 2024 and a slightly better 59 % over five years. Active bond funds can add value through:
1. Duration calls (adjusting sensitivity to interest-rate shifts).
2. Credit research (unearthing mispriced corporate issues).
Because passive bond ETFs often hug a narrow All-Bond Index, there’s genuine scope for skill—if fees stay reasonable.
Active SA listed-property funds lagged in 2024 (only one-third won), yet over ten years the success rate jumps to 60.5 %. The local property universe is concentrated and idiosyncratic; that seems to reward managers who can:
Global property, by contrast, is brutally efficient – only one in five active funds beat passive rivals over ten years.
| Category | 1-yr | 5-yr | 10-yr |
|---|---|---|---|
| Global Large-Cap Blend | 13.8 % | 9.9 % | 3.9 % |
Tech-led US rally – concentrated leadership (Nvidia, Apple, Microsoft) made life painful for diversified stock-pickers.
Fee drag – when index funds cost 0.10 % and some active funds still charge north of 1 %, the hurdle is massive.
Result: In the flagship global equity bucket, passive indices trounce active funds nine times out of ten over a decade.
Active EM funds had a 33.9 % win rate in 2024 and 20 % over ten years. Better than global large-caps, but still a minority. Under-exposure to Tencent and TSMC hurt many managers. Take-aways:
1. Country and sector tilts can add value, but concentration risk cuts both ways.
2. Diversification via a core passive EM ETF with a satellite active fund may be sensible
In 2024, 66 % of active global corporate bond funds beat passives, helped by nimble duration and credit calls. Yet long-run success settles nearer 40 %. The lesson: tactical flexibility helps in volatile fixed-income environments, but fees again erode persistence.
Across all categories, a large chunk of “active failures” stem from funds that closed or merged away. If your chosen manager disappears, you’re forced into a new strategy—often at the wrong time. South African funds display slightly better survivorship than global peers, but the point remains: durability is a hidden advantage of simple index funds
1. Match your weapon to the battlefield
2. Watch the fee gap, not just performance
3. Blend core and satellites
4. Demand a repeatable process
5. Measure success after tax
6. Stay the course
Morningstar’s barometer reinforces a nuanced view:
1. Passive first – for broad, cap-weighted equity markets (especially offshore), the evidence is near-bulletproof.
2. Active with intent – where markets are less efficient, benchmarks are quirky or mandates allow genuine flexibility, selective active exposure can enhance returns or manage risk.
3. Cost and discipline trump brand names.
A well-designed portfolio isn’t a referendum on active or passive; it’s a thoughtful mix that keeps fees low, diversification high, and behaviour on track.
Interesting Read: Thematic investing and some of the megatrends that could shape the next decade
At Henceforward, portfolio construction starts with the conviction that no single style has a monopoly on good outcomes. We build a core-satellite framework: low-cost passive funds anchor broad market exposure and keep overall fees lean, while carefully selected active managers … ranging from nimble boutiques with niche expertise to seasoned houses with deep resources … provide the potential to outperform in less efficient pockets of the market. Each holding must earn its place by adding genuine diversification or excess-return potential relative to its cost.
Because we charge a transparent flat fee rather than a percentage of assets, our incentive is to optimise both performance and total expense for the client, not to gather ever-larger balances. The result is a finely balanced blend that captures market beta efficiently, taps alpha where it’s most likely, and aligns every decision with the client’s long-term goals rather than the economics of the advisor.
Further Reading: Everything you need to know about investing in ETFs as a South African Investor today
Ready to put the odds firmly in your favour? Download our free guide, “The 8 Secrets of Investment Success,” and walk away with the practical playbook we use every day with high-net-worth clients: clear frameworks for building diversified, low-cost portfolios; proven tactics for managing risk and taxes; and behavioural tips to keep you on course when markets test your nerve.
It’s concise enough to read over a coffee yet rich with data-backed insights you can act on immediately – no jargon, no sales fluff, just the principles that have helped investors compound wealth through bull and bear markets alike. Get your copy now and start turning smart ideas into tangible results.
Carl-Peter Lehmann, CFP®, is a Director and Partner at Henceforward, where he draws on more than 20 years of global wealth-management experience - helping his clients invest with confidence. Known for his straight-talking style and flat-fee advocacy, Carl-Peter specialises in offshore investing, retirement planning, and portfolio design that blends cost-efficient passive core holdings with high-conviction active ideas.
