Fees contribute heavily to the variance in performance among active and passive fund managers. A recent article in Investment News says that, according to Morningstar data, “higher fees have the biggest impact on performance,” with the largest variance existing in large-cap stock strategies. The data also shows that the divergence worsens as the time period gets longer.

However, the article also highlights other research suggesting that results depend on more than just fee structure. Scott Opsal, director of research at The Leuthold Group, found that the relative success of active and passive management styles can also be linked to market conditions. He argues that the different fund types can be “approached like any other asset class in the sense that sometimes you win and sometimes you lose.”

Opsal says that passive investing outperforms active when the “largest, mega-cap stocks are doing well” but that active management tends to do better when value investing is favored. “When very high-priced stocks are running, passive investing wins because active managers tend to shun the higher valuations.” He warns that while passive investing has been doing better in today’s market, “you have to keep in mind that if it is cyclical it’s subject to performance chasing. And you don’t want to chase that style because when it shifts active will start winning again.”