Summary
Tariff-related tumult brought volatility and a downturn to U.S. markets during the first half of 2025, but optimism returned after April's lows and the S&P 500® finished H1 2025 at an all-time closing high. Meanwhile, despite ongoing inflation and economic growth concerns, most U.S. fixed income markets gained in the first half of the year.
In our largest and most closely watched comparison, 54% of actively managed large-cap U.S. equity funds underperformed the S&P 500. This was an improvement from the 65% rate observed over full-year 2024 and places the industry on track for the best year since 2022. The dueling winds from the outperformance of the U.S. equity market's largest stocks, coupled with macro uncertainty and higher dispersion, amalgamated in greater potential opportunities for stock pickers to shine than in previous years.
Amid the macro ructions, there were plentiful opportunities to tilt toward outperforming large caps. A 6% performance differential between The 500™ and the S&P MidCap 400®, and a 10% differential between The 500 and the S&P SmallCap 600® may have enabled managers situated in the smaller end of the capitalization range to generate greater relative performance; only 25% of All Mid-Cap funds and only 22% of All Small-Cap funds underperformed to the year's mid-point. Notably, the small-cap underperformance rate was even lower than the 30% reported for 2024, the latter representing the lowest annual underperformance rate across more than two decades of our annual SPIVA Scorecards (see Exhibit 2). Meanwhile, the majority outperformance for mid-cap funds was a significant improvement from last year's results.
Managers focused on international equities also fared well, as evidenced by just 47% of Emerging Markets funds underperforming over the first half of 2025, perhaps benefiting from opportunities to tilt into outperforming developed markets. Other international equity categories posted slightly worse but respectable results: 52% of funds in the Global category underperformed the S&P World Index, and 55% of International funds underperformed the S&P World Ex-U.S. Index. An underweight in the U.S., which regardless of its stellar recovery underperformed other developed markets, may have been particularly helpful for global equity managers.
Fixed income results were generally worse, with an average mid-year underperformance rate of 68% across all fund categories (versus a 42% average across equity categories), and majority outperformance was reported in only 3 out of our 16 categories. Performance among credit managers was bleak: 90% of General Investment-Grade funds and 86% of High Yield funds underperformed. The Emerging Market Debt, Loan Participation and Investment-Grade Intermediate fund categories were bright spots and posted majority outperformance.
Overall, the first half of 2025 was very different from 2024, featuring a new presidential regime, fluctuating tariff policies and double-digit declines for the S&P 500 followed by a subsequent turnaround, as well as the outperformance of international equities. One theme that continued from 2024 was the shifting nature of mega-cap outperformance: smaller U.S. stocks outperformed last year ahead of the election and this year after the announcement of tariffs, but in both instances, mega-caps subsequently returned to favor.
Possibly not despite but because of these complexities, active equity managers across capitalization spectrums and geographies performed slightly better than in recent years, picking their way through market declines, higher stock- and country-level dispersion, and the associated style bias opportunities. Many fixed income managers, on the other hand, appeared to have been not quite as adept at navigating the turbulence.
