Active managers are under pressure to launch exchange-traded funds due to outflows. These active ETFs are cheaper than traditional funds, costing about 30 to 40 basis points less annually. However, the average fund has lagged behind indexes in 15 of 27 categories, particularly large blend. The outlook for active stock funds may improve with lower-cost ETF versions.

An analysis of active US and international stock funds shows that the average fund has struggled to outperform indexes over time. While fee cuts are welcome, active stock funds still face challenges, especially in popular areas like large blend and large growth. Tax efficiency is a consideration, but active stock ETFs must first beat the index before taxes come into play.

Investors are advised to carefully assess whether to invest in active ETFs or open-end funds. While active equity ETFs offer tax advantages and cost savings, they must also demonstrate the ability to outperform indexes before fees. The burden of proof remains on active managers to justify their performance, especially in categories where success has been limited.

Read more at Morningstar: Active Stock Fund Managers Have Got a Deal for You. Should You Take It?