In the first five years of this decade, assets in equity exchange-traded funds (ETFs) increased by a factor of six, easily topping $200 billion. Over that period, assets in index-tracking equity mutual funds increased by about 29%. And actively managed equity funds? They grew their asset base by just 6%.

Does this mean that the actively managed stock fund's time has come and gone? Of course not. Investors lost confidence in the fund industry and in many fund families in particular in late 2003 and 2004 following the revelations that some executives had allowed hedge funds and even insiders to profit from mispricing within the funds. ETFs were the primary beneficiary of that loss of confidence, pulling in a net inflow of $55 billion in 2004. But clearly investors have been selective, and a number of fund firms with an active bent have attracted assets quite successfully in the post-Eliot Spitzer period (these include American Funds and Dodge & Cox).

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