Breadth widened, and 67% of large-cap funds still lost

The broadening out active managers had waited for arrived in the first half of 2026. After a volatile start, the S&P 500 closed the half up 10%, while the S&P MidCap 400 advanced 17% and the S&P SmallCap 600 rose 24%, a spread wide enough that the rally stopped being a megacap affair, and according to the mid-year SPIVA U.S. Scorecard, 67% of active large-cap U.S. equity funds still finished behind the S&P 500.

That is better than the prior year's 79% underperformance rate, but the improvement is not as flattering as it looks. Market breadth bought large-cap managers twelve percentage points of hit rate; it did not buy them a majority. The scorecard's own framing—that wider market participation is not enough for stock pickers to overcome benchmark efficiency and fee drag over time—is the more durable reading.

Domestic mid- and small-cap funds make that reading plainer: the S&P 400 outpaced the S&P 500 by seven percentage points over the half and the S&P 600 by 14, yet 74% of mid-cap funds and 69% of small-cap funds finished behind their own style benchmarks. The scorecard's account of the asymmetry is mechanical: large-cap managers could tilt down-market into the names that were running, so the wide tape handed them an escape route that mid- and small-cap managers never got, because their universes offered nothing larger and faster to tilt into.

The 24% run in the S&P SmallCap 600 is worth holding in view alongside that 69%, because the two figures describe different things. A small-cap allocator in the first half owned an asset class that worked in absolute terms; what the card measures is the distance between the manager and a style benchmark that made 24% by owning the universe, against no fee line. Relative underperformance in a half like that is the arithmetic of cost and position drift, not evidence of a broken asset class.

That 74% mid-cap figure is the most uncomfortable number in the card's equity sections. A mid-cap manager's benchmark beat the S&P 500 by seven points over six months, and three-quarters of the category still lost to it in the half when the broadening-out thesis should have paid best. Whatever the dispersion of returns is worth to an active manager, it is worth less than the cost of running the portfolio.

There is a version of the breadth thesis that survives this card, and it is worth stating in its strongest form. When an index's return comes from a wider set of names, the gap between the best and worst manager in a category widens, and a category's failure rate is a thin description of its top quartile. The release reports underperformance rates rather than the dispersion of outcomes, so the same six months could have been poor for the median fund and excellent for whoever owned the winners. Nothing in the release contradicts that, and nothing in it supports it either.

Outside the United States the numbers are friendlier, and they are the ones most likely to be sold. Only 49% of U.S.-domiciled international funds and 53% of global funds trailed their benchmarks, the two readings closest to a coin flip in the release, and emerging market managers did better still: 38% underperformed in a half-year when the S&P Emerging Plus Index gained 22%.

International small-cap managers produced the best hit rate of the equity categories the release details, with 35% finishing behind the S&P Developed Ex-U.S. Small-Cap index. The scorecard attributes that to a lower performance hurdle and the room to tilt into larger global companies, a description of an easier benchmark and a wider mandate rather than of better information. That the edge came from the hurdle is the part of the card least likely to travel, and the part an allocator should price first.

For a model portfolio, the conclusion that follows is less a new allocation to active international small-cap on the strength of one half than a note about where a fee budget gets spent. US large-cap core is the sleeve where two-thirds of the category missed in a favorable six months; emerging market and international small-cap are the sleeves where 62% and 65% cleared benchmarks that are harder to define and easier to beat. Index the core and consider paying for the edges—those two facts jointly support that barbell as a judgment about benchmark efficiency rather than about skill.

The wrapper is where that judgment gets tested. As this publication has argued, the active ETF is now a distribution wrapper first and an investment product second, and a card showing two-thirds of large-cap funds behind the index is, more than anything, an argument about pricing. Move a strategy into an ETF shell and cut the expense ratio and the selection has not changed; what changes is how much of a head start the manager has to give away before a single position is chosen. Firms treating the wrapper as the fix are testing a proposition the mid-year numbers price carefully.

The card measures six months and no more. The release carries no longer-horizon tables, so nothing in it settles whether 67% is the start of a slide toward the international figures or a one-half wobble around 70. The December update will show which, and both readings will be sitting in the same document.