BlackRock's Recent Underperformance Amid Market Volatility: A Reassessment of Active vs. Passive Fund Management

The 2023–2025 period has been a crucible for active fund management, with market volatility driven by U.S. policy shifts, geopolitical risks, and structural economic changes. BlackRock, a titan in both active and passive investing, has found itself at the center of a broader industry reckoning. While its passive index funds have thrived in this environment, its active strategies—particularly in fixed-income and global equity allocations—have struggled to justify their higher fees. This divergence raises critical questions about the evolving role of active management and the long-term implications for investors navigating an unanchored macroeconomic landscape.

The Passive Dominance: A Data-Driven Reality

According to the Morningstar Active/Passive Barometer, only 33% of active funds outperformed their passive peers in the 12 months through June 2025. Fixed-income categories, especially corporate bonds, saw the most dramatic underperformance, with active managers' success rates plummeting to 3.9%—a 60-percentage-point drop from prior years. This was exacerbated by passive strategies' focus on the optimal five- to seven-year maturity range on the yield curve, a structural advantage in a market defined by stubborn interest rates and widening credit spreads.

The fee disadvantage of active funds further compounded their struggles. Over a 10-year period, funds in the cheapest quintile outperformed those in the priciest quintile by a 12-percentage-point margin (27% vs. 15% success rates). This cost sensitivity has accelerated the shift toward passive vehicles, with investors increasingly prioritizing transparency and efficiency.

BlackRock's Active Gambit: Flexibility vs. Execution Gaps

BlackRock's active strategies, such as the iShares Flexible Income Active ETF (BINC), aim to capitalize on volatility by targeting high-yield sectors like European bonds and securitized debt. Rick Rieder, BlackRock's CIO of Global Fixed Income, argues that active management is essential in a “no macro anchor” environment. However, the firm's Global Allocation Fund—a flagship active product—underperformed in July 2025 as sectors like utilities and industrials surged. The fund's annualized standard deviation of 9.96% (vs. 15.27% for global stocks) historically justified its risk-adjusted returns, but recent volatility has exposed gaps in its ability to adapt to rapid sectoral shifts.

The firm's 2025 midyear outlook acknowledges the erosion of long-term macroeconomic anchors—such as inflation expectations and fiscal discipline—and emphasizes tactical positioning in U.S. equities and AI-driven sectors. Yet, the underperformance of its active funds underscores the challenge of balancing flexibility with execution in a market where crowded trades (e.g., tech and AI momentum) unwind abruptly.

Strategic Implications for Investors

The active-passive debate is no longer a binary choice but a nuanced allocation decision. Here are three strategic takeaways for investors:

1. Cost Efficiency as a Priority: In asset classes like large-cap U.S. equities and corporate bonds, passive strategies have consistently outperformed. Investors should allocate the majority of these positions to low-cost index funds, reserving active strategies for niche areas with higher alpha potential (e.g., emerging markets, private credit).

2. Active Management in Uncertain Environments: While active funds underperformed in 2023–2025, they retain value in volatile, unanchored markets. Investors should focus on active managers with proven adaptability—those leveraging AI-driven analytics, granular fixed-income selection, or tactical FX strategies—to navigate structural shifts.

3. Diversification Across Time Horizons: Short-term volatility (e.g., policy-driven selloffs) favors passive resilience, while long-term structural trends (e.g., AI adoption, energy transition) may justify active bets. A layered approach—using passive vehicles for core holdings and active strategies for satellite allocations—can balance risk and return.

The Future of Asset Management: A Shifting Paradigm

BlackRock's dual role as a passive indexing leader and active manager highlights the industry's broader transformation. As macroeconomic anchors weaken, the demand for active management may stabilize in specialized niches, while passive strategies dominate in commoditized asset classes. For asset managers, the key will be to differentiate through innovation—whether in ESG integration, alternative data, or thematic investing—to justify active fees.

For investors, the lesson is clear: the market's new normal demands a hybrid approach. Passive vehicles provide the bedrock of cost-effective exposure, while active strategies—when skillfully applied—can unlock alpha in volatile, uncharted territory. As BlackRock's experience illustrates, the future of investing lies not in choosing between active and passive, but in strategically deploying both to navigate an increasingly fragmented world.

In the end, the 2023–2025 volatility has not invalidated active management—it has simply redefined its role. Investors who adapt to this paradigm will be better positioned to thrive in the next phase of market evolution.