must earn the market return; therefore, after costs, the average active manager will earn less than the market. As a result, according to Sharpe, active investing is a zero sum game before costs and a negative sum game after costs. With regard to empirical support for both theories, a 2021 paper finds that "the research findings seem to accord more with a Grossman and Stiglitz equilibrium than Sharpe’s proposition." The paper also notes that the "the underlying logic [of Sharpe's proposition] is not as water-tight as it may seem." Performance There are two reports that regularly evaluate the performance of actively managed funds. The first is the SPIVA report (Standard & Poors Index Versus Active), which compares actively managed funds to an index. The second is the Morningstar Active-Passive Barometer, which compares actively managed funds to passively managed funds. Both reports are published semi-annually and use a similar approach, namely: They group funds into categories based on investment type (e.g., emerging market stocks, municipal bonds). For various periods (ranging from 1 year to 20 years), they compare the performance of the funds in the category to the performance of a relevant index (in the SPIVA report) or of passively managed funds in that category (in the Morningstar Barometer). They calculate the percentage of funds in the category that outperform the passive alternative and the percent that underperform. (SPIVA reports the percent that underperform, while Morningstar reports the percent that outperform.) These reports have often concluded that the performance of actively-managed funds is disappointing. For example, the SPIVA U.S. Year-End 2021 report finds that "79.6% of domestic equity funds lagged the S&P Composite 1500 in 2021." Results vary by category, with some categories experiencing a higher percentage of outperformance. As a consequence, many economic writers recommending investing in passively managed funds. One analysis of the methodology in these reports concludes that it results in an overly negative assessment of active managers' skill, especially over longer periods. SPIVA publishes two additional reports comparing the performance of actively managed funds to a passive benchmark: a risk-adjusted performance analysis and a performance "persistence" analysis. The persistence analysis calculates the percentage of actively managed funds that have outperformed a passive benchmark in consecutive periods. The persistence report is controversial. One critic has called persistence "overrated" and a "red herring". Advantages of Active Management Active management provides investors with the potential to earn higher returns. Active