Mutual fund investors who put their money in index-based investments edged out others who bet on actively managed funds in all but one of the major style categories, according to a newly released study by Standard & Poor's. Only large-cap actively managed mutual funds beat out their index-based competitors in the same style category.

The results in 2004 were only slightly better than the previous year, when index funds dominated actively managed funds in five of nine major style categories and tied in one category.

In the fourth quarter of 2004, the S&P 500 Index returned 9.23%, representing 85% of the total return for the year, which was 10.87%, noted Rosanne Pane, mutual fund strategist at Standard & Poor's. "The impressive rally after the election favored the growth style, and helped large-cap growth funds outperform their index for the year."

In 2004, the S&P Composite 1500 outperformed 51.4% of actively managed U.S. stock funds, the S&P 500 beat 61.6% of actively managed large-cap funds and the S&P MidCap 400 beat out 85.0% of actively managed small-cap funds.

Survivorship bias and style drift played a significant part in the performance, S&P noted. "Mergers and liquidations of funds slowed down in 2004," said Srikant Dash, index strategist at S&P. "The percent of actively managed equity funds merging or liquidating in 2004 was 5.2%, compared to 7.4% in 2003. In addition, mutual funds were also more style consistent, with 88.8% of funds staying in their investment style in 2004 compared to 72.2% in 2003."

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