Stanford researchers demonstrated an AI analyst outperforming 93% of human fund managers over 30 years, while active stock-picking funds faced $1 trillion in outflows as tech stocks dominated markets.
Meanwhile, active stock-picking funds continued their struggles, with $1 trillion in outflows in 2025 as investors favored passive strategies amid a tech-driven market.
AI’s Edge Over Human Fund Managers
The AI, trained on public market data, adjusted portfolios by swapping underperforming assets for index funds and rebalancing holdings every quarter. It was stunning,
said Ed deHaan, a Stanford professor, noting the AI beat 93% of managers by an average of 600% over three decades. The model used simple variables like firm size and trading volume but applied complex AI techniques to optimize returns.
We spent the past 12 months scouring every inch of the data and of the model trying to find where we’d did something wrong,
deHaan said. The AI’s strategy involved sorting investments into 10 performance buckets and selectively replacing low-performing assets. If every investor were using this tool, then much of the advantage would go away,
said Suzie Noh.
The Struggles of Active Funds in a Tech-Dominated Market
Active equity mutual funds faced their 11th year of net outflows in 2025, with $1 trillion withdrawn as investors shifted to passive strategies. Tech giants dominated the S&P 500, making it harder for active managers to differentiate their portfolios. The concentration makes it harder for active managers to do well,
said Dave Mazza, chief executive officer of Roundhill Investments, noting that if you do not benchmark weight the Magnificent Seven, then you’re likely taking risk of underperformance.
Bloomberg Intelligence data showed 73% of equity mutual funds underperformed their benchmarks this year, the fourth most in data going back to 2007. The S&P 500 outperformed its equal-weighted version, forcing active managers into a dilemma: underweight large caps and risk falling behind, or mirror the index and justify higher fees. Choosing yesterday’s winners is not the right approach,
said Joel Schneider, the firm’s deputy head of portfolio management for North America, whose international small-cap fund returned just over 50% by avoiding U.S. tech giants.
Implications for the Future of Investing
The Stanford study highlights a growing divide between active and passive strategies, with AI amplifying the efficiency gap. While active managers struggle to justify fees, passive equity exchange-traded funds got more than $600 billion.
Any investment firm in the pre-AI era could have done this work by hiring enough quants,
said deHaan, suggesting the tools are now accessible to all. As one analyst noted, There are going to be white-knuckle moments.
That just creates the opportunities.
What’s Next for Active Management?
Some fund managers are shifting toward niche strategies, like Dimensional Fund Advisors LP’s international small-cap approach, to avoid direct competition with tech-heavy indexes.
The magnitude of these results is in no small part due to the fact that the experiment essentially traveled back in time, dropped an AI analyst on a single team, and so gave that team a huge advantage,
deHaan said. As more investors adopt similar technologies, the margin for outperformance will shrink.
