Data showing strong performance of actively managed mutual funds, compared to indexes, may need another look, according to a study released Thursday by Savant Capital Management  and the Zero Alpha Group.

"The mutual fund industry systematically and significantly overstates fund performance in a way that falsely makes actively managed mutual funds occasionally look competitive with indexes," according to the report, prepared by Savant staff and co-sponsored by the Zero Alpha Group, a collation of nine independent advisory firms that share a commitment to a passive, tax-managed approach to investment.

Performance of actively managed funds is skewed upward, according to the study, because independent analysts such as Morningstar fail to account for a "survivor bias," according to the report.

"'Survivor bias' is a kind of grade inflation for mutual funds that occurs when the funds with the worst performance are made to disappear form the database while strong performers move forward," the report notes.

Using Morningstar data, the authors of the report examined the effect of survivor bias on fund returns from 1995 to 2004, and found that when readjusted, in all but one of Morningstar's 42 fund categories, performance was inflated, on average, 1.6% per year.

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