Morningstar has warned that most traditional active fund managers are underperforming the market and now face the very real prospect of being wiped out entirely by exchange-traded funds that have better returns and lower fees.

The research house put firms like Pinnacle, L1 Group, Magellan, and Macquarie Group on notice on Wednesday after it published a report that showed most ASX-listed fund managers had underperformed the S&P/ASX 200 total return index this year.