Passive investing has been around for more than 50 years, since Vanguard’s Jack Bogle conceived the first index tracker, and it has become an enormously popular form of investing.
In theory, passive and active investing offer two very distinct approaches to markets. One aims to replicate the performance of the whole market, in a low-cost, broadly diversified way, while the other demands higher costs in exchange for active decision-making that could deliver an outsized return.
But for Portfolio Thinking co-founder Dan Kemp, the lines between these two have blurred over time, and the gap is now less clear than it used to be.
Part of this, he claimed, is the impact that the dominance of index trackers has on active funds.
Take, for example, the performance argument, he said. According to AJ Bell’s most recent Manager vs Machine report in July 2026, on average, just 17% of active funds have outperformed a tracker alternative over the past five years. Results do not get much better over 10 years, with just 21% beating the average tracker.
See also: AJ Bell Manager vs Machine: ‘An embarrassment for the active fund industry’
Similarly, active funds have also been displaced as the most popular form of investment. According to data released by Calastone, passive investing attracted more than £12bn of new money in 2025, with active equity funds down by almost £18bn. The last time active funds attracted more money than passives was in 2021.
As a result, weaker active managers have died off, leaving only the relatively strong ones, and active management fees have shrunk, he argued. The consequence of more dominant index tracking, then, is a stronger set of active managers that cost much less, not all that dissimilar to passive funds.
“There’s still absolutely a gap,” he noted. “But the gulf between what we think of as passive investing and active investing has shrunk dramatically,” Kemp said.
Dan Caps, head of index MPS at Evelyn Partners, largely agreed lines had been blurring.
“The move towards index tracking is often laid at the feet of index tracking funds and passive investors,” he said. “But what you’ve seen over the past 10 or so years is investors just becoming far more benchmark aware.”
The rise of active ETFs, or funds with very tightly controlled risk budgets and deviations from the benchmark, reflects this, he noted.
There’s nothing passive about tracking an index
However, the trend also goes the other way. Just as active funds have adopted some of the characteristics of passive funds, index trackers are arguably more active than they look, according to many experts.
Dale Brooksbank, head of global equity Europe at Vanguard (the effective birthplace of the index tracker), is one such expert.
“I’ve always been very passionate about the fact that indexing is anything but passive,” he told Portfolio Adviser.
Because index investing involves transaction costs, taxes, or trading time, index investors will struggle to replicate the index’s returns, he explained. To get close, he argued, index investors need to make decisions, such as pre-empting the secondary market or using stock lending.
“The reason we differentiate indexing from passive investing is that there are several decisions you have to make every day,” he said. “I’d argue that those are poorly served by calling them passive.”
“We live in the world now of index investing, not so much of passive investing,” Portfolio Thinking’s Kemp added.
Similarly, even buying an index tracker is an active decision, according to CJ Cowan, manager on the Quilter Cirilium range.
Picking an index tracker involves asking quite a lot of questions, he noted, such as which provider is chosen to track it, which requires nuance.
“You can buy a fund labelled ’emerging market ETF’ and get wildly different performance,” Cowan noted. “Even in a year when Korea doesn’t go absolutely bananas, you could have almost 3% difference in performance.”
See also: Finding marginal gains in a passive world
Alex Funk, CEO of PortfolioMetrix, took it one step further, noting that picking an index fund implies a certain set of investment beliefs. It requires believing that markets are mostly efficient and size companies accurately, or that large caps should outperform small caps.
“All of these are real investment merits, real investment philosophies you need to have,” he argued. “You aren’t investing ‘passively’; you’re an investor with specific beliefs.
“There’s a fallacy that we’re able to invest in all these passive model portfolios and so on,” Funk added. “You’re just buying low-cost active.”
In this sense, he argued the term had essentially become a marketing tool, which Kemp echoed.
“Passive investing had become a very positive investing brand, but from a marketing perspective, what it encompasses is far more diverse,” including the likes of equally weighted ETFs, factor-based investing and so on, Kemp said.
“The clear dividing line between active and passive is, I think, mostly behind us,” he concluded. “This could be the nail in the coffin for ‘traditional’ passive investment.”
