Active Australian equity managers are having their worst run in almost a decade

Active Australian equity managers are enduring one of their toughest stretches in years. About 78% of actively managed Australian equity funds trailed the S&P/ASX 200 Index in the first half of 2026, according to S&P Dow Jones Indices - the worst showing since 2018 (when 87% underperformed) and the second-worst since the firm's data series began in 2013. The average active portfolio returned just 0.2% over the six months, against a 2.4% gain for the benchmark itself.

A large part of the story is how concentrated the ASX has become. The 20 largest companies on the index now account for 63.4% of its total value, up from 61% at the start of the year and near the highest level in more than a decade. When the index's return is increasingly driven by a shrinking handful of mega-caps, stock-pickers who don't hold - or are underweight - those exact names have a much narrower path to beating it. Only 35% of ASX 200 constituents actually outperformed the index in the first half, meaning managers had fewer winning stocks to find in the first place.

“When the pool of outperforming stocks narrows, the probability of successfully identifying them declines,” said Sue Lee, S&P Dow Jones Indices' head of index investment strategy for Asia Pacific.

The sharpest swing was a rotation out of banks and into miners, led by BHP's 30% rally in the first half - a single stock that alone added 2.9 percentage points to the market's return as copper prices climbed to record highs. At the other end, healthcare and technology - sectors many growth-focused managers lean on - fell 22% and 16% respectively over the same period, a slide compounded by three rapid interest rate rises from the Reserve Bank of Australia.

The fallout has been visible in individual funds. Hyperion's Australian Growth Companies Fund fell 14% in the first half after heavy selling in growth stocks including WiseTech Global, Cochlear, Xero and CSL; the $12.5 billion manager cut its technology exposure and rotated into mining stocks in May, which has since helped performance recover. ECP's Growth Companies Fund fell 20% over the same six months, also weighed down by WiseTech and a sizeable holding in Corporate Travel Management. Australian Unity went a step further, closing Platypus Asset Management entirely after its flagship fund lagged the ASX 300 Accumulation Index by 22.9% in the year to July 31.

Not every active manager struggled. L1 Capital's Long Short Fund, which had bet against several large-cap stocks including the major banks, beat the benchmark by 40% over the past year; since its 2014 inception, it has outperformed the market by more than 12% p.a. - a reminder that dispersion cuts both ways for managers willing to bet against the crowd.

The persistence of the underperformance is starting to worry industry watchers. “If funds keep underperforming by 20 per cent, that will be a quick road to investors moving elsewhere, leading to outflows and placing more pressure on the business,” said Morningstar's director of manager research, Matt Olsen. “While some managers might survive shorter-term periods of underperformance, if it persists, it will be very hard for them.” Zooming out, the pattern isn't new: over a rolling 15-year period, 89% of actively managed Australian equity funds have trailed the index, according to S&P Dow Jones Indices.

For everyday investors, the data underscores why a growing share of new money each year goes into low-cost index ETFs rather than actively managed funds - you can't underperform the index if you simply own it.