Vanguard: Active Funds Can Outperform Passive

But that's because the results of large numbers of active or passive funds are blended together, says Selwyn Gerber, an asset manager in Los Angeles at RVW Investing.

"Averages are quite meaningless,'' he said. "If I lay you on a bed with your feet in the furnace and your head in the freezer, on average you'd be comfortable.''

Indeed, the averages are boosted by the fact that only the successful funds survive. Bad performers are shut down. And what an individual investor has to do is pick an individual manager that can outperform the market over a long period of time.

"You can't buy an average fund manager. You have to pick a manager,'' Gerber said.

"And if you pick a manager, he will oscillate as his style goes in and out of vogue,'' he said.

There are ways to isolate that subset of managers that can provide "excess return.'' They can be ranked against benchmarks or against peers.

But passive investing tends to be safer, because stocks are held longer, keeping taxable events down. "Active managers are subject to a haircut each year,'' Gerber said.

For any investor, "it's not what you earn, it's what you keep" that counts.

The Morningstar numbers indicate actively managed funds do their best at outperforming their passive peers in times of stress: the dotcom bust of 2000-2002 and the credit crisis of 2008-2010.

That stands to reason, says Koesterich. When markets are ruled by fear, it takes a smart manager to find, pick and hold the "unique opportunities" that have lost undue value, for instance.

The key, says Morningstar's director of mutual fund research, Russel Kinnel, is to recognize that not just "any random index or any random active fund is going to lead to good results."

The advisor or the investor involved has to figure out, every time, which fund can be counted on beat both peers and benchmarks.

Historically, he notes, at any given time, only one-third of actively managed funds outperform their benchmarks. Two-thirds don't.

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