With active management seemingly in a downward spiral, advisors have to question the sustainability of their mutual funds over the next decade.

At the Morningstar Investment Conference last week in Chicago, Laura Lutton, the firm's practice leader of manager research, and Greggory Warren, financial services sector strategist, shared the firm's views on nine fund complexes whose active strategies are likely to survive the next 10 years.

“We’re only highlighting nine firms here, but there are plenty of others out there with positive attributes,” said Lutton. “As we think about the industry overall, we think active managers need to improve their performance and they need to change the perception that active management means underperformance.”

It’s no secret that active’s decline is passive management’s gain. In 2016, passive funds grew 4.5 times faster than their active counterparts, according to Morningstar. In March of this year, $31.1 billion flowed into passive equity strategies, while investors pulled $18.6 billion out of active management equity.

Active managers must be able to stand out from the crowd to survive, according to Mroningstar. Luckily, there are limitless ways firms can differentiate themselves, including the use of greater scale, focused expertise and broad diversification, according to the research firm.

Cost is another ingredient to an asset manager’s success, said Lutton. Though the lowest cost product is not always the best or most successful option available to investors, Morningstar’s research has found a strong correlation between low expense ratios and strong performance.

“If you’re in the marketplace with higher cost funds, we think the pressure to cut costs is only going to increase from here,” said Lutton. “The Department of Labor fiduciary rule is going to be one of those forces that is going to force low costs moving forward, but we believe the market was heading there anyway.”

Active or passive, managers will need to offer investment products with repeatable investment processes offering predictable return patterns. As investors continue to shift away from products and towards portfolios, funds acting as portfolio components should not only display strong performance, but reliable results. Processes also mitigate key-person risk, according to Morningstar.

Good asset managers built to last tend to use adaptable business models that allow them to expand into areas of growth, change leadership or alter their investment processes as market and economic contexts change.

Warren and Lutton said that advisors can be comfortable that most of the funds offered by the following nine providers will still exist a decade from now.

Vanguard

Morningstar considers Vanguard among the best-positioned industry leaders. Due to its scale and mutual ownership, it is able to offer investments at cost.

“The business model is going to be a huge advantage for Vanguard moving forward, and we think it will be incredibly difficult for the competition to catch them on cost,” said Warren.

Morningstar does warn that Vanguard could experience outflows due to its size--the firm has $3.4 trillion in assets--and it’s dependence on index investing.

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